While many sales agreements have been settled with a handshake, in today's complicated and often litigious real estate transactions, you want to get everything in writing.
I am not suggesting that those participating in today's real estate transactions are any less ethical than previous generations, rather that transactions in 2012 are much more complicated than in the recent past.
Today's contracts are filled with contingencies and due diligence periods, all of which can best be understood if first put into writing and agreed to by both parties.
Consider a contract to build a new home. While a floor plan and location may be selected, which a buyer approves, there are many decisions to be made beyond the layout, all of which need to be clearly spelled out in writing.
From paint color and fixture selection to the type of doors and landscaping, all require a decision, and it should always be a practice to document decisions/choices/selections in writing.
Once a project is begun, if a change in plans is made, most builders use some type of "change order" form to document the change. This step discloses any associated costs and determines who is paying for the additional costs.
If changes are agreed to verbally and there is a dispute, how do you determine who is at fault and who pays to correct the error? A misunderstanding over a fiberglass door made to look wood-like and a solid wood door can be an expensive misunderstanding to correct.
While buyers often wish to make a verbal offer to purchase a property verses putting the specifics in writing, this is a bad idea in my experience. There are numerous costs associated with the transaction, due diligence periods and contingencies, all of which need to be fully spelled out, reviewed and agreed upon. For example, what is the buyer's recourse if a defect arises in the chain of title or if the property fails to appraise for the agreed purchase price? How long does a buyer have to examine/inspect the property and what are their options once all inspections are complete?
Whether a residential, commercial or raw land transaction, will a survey be performed and who pays for the survey? It is no longer a common practice to have a new/updated survey performed as part of a residential purchase agreement, however if the buyer intends to install a fence or build an outbuilding where setbacks may become important, then a satisfactory survey contingency should be included in the agreement. If this clause is not in place and the buyer finds they cannot use the property as they desired and therefore wishes to terminate the agreement, which party would have claim to the earnest money?
When entering into any type of real estate agreement, first consult an experienced member of the Greater Chattanooga Association of Realtors to guide you through the process and help you avoid as many pitfalls and misunderstandings as possible.
Mark Hite is president of the Greater Chattanooga Association of Realtors