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8 Common Real Estate Contract Errors and How to Fix Them - Improving Our Businesses By Avoiding Common Mistakes
No matter how many contracts we see each week, there are always mistakes. Too often, agents make common real estate contract errors, therefore making themselves and their clients look bad.
Let’s all take a minute to review these errors, and make a commitment to avoid them in the future.
***Warning*** As a real estate agent, you likely have contracts provided to you by your local association. All you have to do is complete or fill in these forms. It is considered practicing law if you alter the contracts, and unless you are an attorney, just don’t do it. If you feel you need to alter the contract to effectively present or accept the offer, consult an attorney.
Here are 8 common real estate contract errors (and how you can avoid them):
1. Failing to completely fill in the contract
You should never leave blank spaces in a real estate contract. Fill in all necessary spaces and check every applicable box. This practice should become a regular habit. If something does not apply, use a dash ( —— ) or enter “N/A.” Uncompleted areas of the contract create confusion and increase the chance of contract manipulation. It’s not uncommon for closings to be delayed because contracts are not completed correctly. Don’t be the reason your client loses a sale or misses out on the perfect home. Make sure every contract is filled out completely, every time.
2. Not using the full legal name for the buyer(s)
Failing to correctly use a client’s full legal name can have several consequences.
The most common name-related real estate contract errors:
Using nicknames, such as “Rich” or “Rick” when the legal name is Richard.
Not including a buyer’s middle initial, or including the incorrect middle initial.
Combining spouses or co-buyers into one name instead of listing names separately. For instance, “John and Jane Smith” rather than “John Smith and Jane Smith.”
Not including all buyers’ names on the contract.
The most common issues related to improper names on contracts:
The lender will need a contract addendum to use the correct name.
Oftentimes, if the property is a bank REO or other distressed type sale, they will not permit a name change (or name to be added or removed). It is entirely possible for a contract to be canceled over this issue. The lender will be unable to approve the intended buyer because their name(s) were not on the contract.
Title work will need to be completely redone, leading to delays and increased fees.
The appraisal will need to be amended.
Before submitting the contract, check and double-check that all names are correct. You should also consult with the buyers and ensure all names on the contract are the full legal name.
3. Not using the full or correct address of the property being purchased, along with the corresponding Property Index Number (PIN) or Permanent Real Estate Index Number
We’ve seen it happen: the contract and all associated documents – including the title and property – were written for the wrong address. In one instance, the buyer intended to buy “123 Home Ave,” for example, but the agent listed “123 Home Street” on the contract. In this instance, the transaction made it all the way to the closing table without anyone noticing the mistake.
Needless to say, this small error caused significant problems. Be sure you’re using the correct address and PIN or Permanent Real Estate Index Number on the contract. Failure to do so could cause significant delays or even cause the deal to fall through completely.
4. Relying on faxes and bad scanners
Contracts need to be legible. Illegible or sloppy contracts are common – and they’re often due to laziness or improper scanning. Taking a few extra minutes to make sure all parties can read the contract could save you hours of headaches later on.
While this seems like common sense, agents often rush through this process. Once the contract is fully executed, it should be entirely readable without the aid of a magnifying glass. Make sure the contract is scanned or printed on the correct paper size and all parts are visible and legible. All pages should be included and be facing the same way.
If you don’t have the right equipment, you may have to drive to meet your clients to get signatures.
With today’s technology, it’s easy to avoid real estate contract errors like these. Now, agents can eliminate scanning and faxing altogether in many instances. Paperless options, like those listed here, can save you time and frustration.
5. Using “Per Survey” instead of the actual lot dimensions
Lot dimensions are on most contracts for a reason. The buyer gains a clear understanding of the property’s size based on documents from the selling agent or seller. The buyer creates expectations for the property’s use and future sales based on lot dimensions. Using “per survey” in the contract immediately negates these expectations, often leaving the buyer unsure about the exact dimensions.
Instead, include the exact lot dimensions. It might take some extra work on your part to gather this information, but the time you spend on this task will pay off in the end.
6. Incorrect or unreasonable closing and contingency dates
One of the best ways to protect your client is to have reasonable mortgage contingency dates and closing dates. Too often, buyers lose a property because the contract included unrealistic or impossible closing dates or contingency dates. Keep in mind that inspection, mortgage underwriting, and other associated processes can take several weeks to complete. If a buyer needs an extension on any of those dates, and the seller refuses, it could result in a cancelation of the contract.
In addition, check a calendar when setting dates to ensure they aren’t on weekends or holidays. This is one of the most common contract errors and can easily be avoided with a little attention to detail. Failing to double-check your dates does not reflect well on you as a real estate agent.
7. Not completing all of the contacts on the contract
Most real estate contracts have a spot for the buyer and seller, as well as the buyer’s agent, seller’s agent, buyer’s attorney, seller’s attorney, mortgage lender, and condo association. When writing a contract, fill out all contact information to the best of your ability. If you are the buyer’s agent, but you know the selling agent’s information, fill it in. The selling agent can then fill in any gaps in contact information.
The end goal is to have all contact information completed before the seller signs the contract.
8. Making changes to the contract once the contract is executed
One of the worst real estate contract errors an agent can make is to change a contract once it’s been signed by both parties. If a buyer and seller have both signed the contract, it is legally binding in its current form. Neither you as the agent nor your clients can make any amendments to that document without the help of an attorney. If changes are necessary, let an attorney handle it.
Be extra careful with this one. Changing a legally binding contract can lead to some serious consequences, including legal trouble or forfeiture of your real estate license.
A Bonus Thought on Low-Ball Offers
No one wants to receive a low-ball offer. We all know that some negotiation is expected, but as professionals, we should discourage our clients from writing extremely low offers in most cases. At the bare minimum, you should run some comps and determine a fair value and view the property. In rare cases, it might be possible to offer significantly less and have the offer accepted – but those cases are rare.
For instance, last week, a property owner on the WinningAgent team received an offer of $47,000 for a property listed at $164,900. While the property owner is offloading some inventory, he is in no way desperate to sell. The buyer’s agent never contacted the owner or viewed the property before submitting this offensive offer. Not only did the seller not accept the offer, but he also has a not-so-favorable opinion about the buyer’s agent, who essentially wasted the seller’s time submitting the offer.
The bottom line: don’t be that agent. If your client does want to submit an offer for significantly under listing price, mention to them that you want to contact the listing agent to see if the sellers would entertain the offer. There’s no need to spend time writing an offer if the sellers aren’t willing to accept such a low-ball offer.
In today’s real estate market, a low-ball offer isn’t just a bad idea. It can also reflect poorly on you as an agent. Respect your time and the time of other agents, and avoid writing low-ball offers.
Making a conscious effort to avoid these common real estate contract errors can benefit both your clients and your business. Leave a comment below and let us know if you found this information helpful. And please share this information with your peers.
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