Guest blog post featuring Tim Tyree, BRR’s legal counsel and principal of Tyree Legal, PLLC.
Recently, I attended a First Friday Broker Forum. The discussion topic was this: When I receive a phone call and the prospective client asks, “I want to get out of my contract,” or asks, “can the buyer break our contract?”, here are the most common ways I can break the deal.
By far the most common deal killer is the lack of a sufficient legal description. This is a double-edged sword because not only does the lack of a sufficient legal description render the contract invalid, it also exposes the agent to liability. Pursuant to the Idaho Real Estate License Law, all offers to purchase must have a legal description. The failure to provide a legal description exposes the agent to liability.
The most common mistake I see is using a legal description taken from the county assessor’s webpage. That description is not always complete, especially when the property contains multiple parcels. If it’s not complete, the contract is in jeopardy.
The fix is easy — obtain a copy of the seller’s vesting deed. Obtaining the deed confirms two points, the legal description of the property and the identity of the seller (more on the seller later). If the deed is just for a lot and block, the Idaho REALTOR® forms make it easy, but if it’s anything more, attach the whole deed and remember to initial all pages. Yes, you can attach just the legal description from the deed, but sometimes the legal description is spread out and there’s no harm in attaching the whole deed.
By confirming the identity of the seller in the deed, you avoid another common mistake — binding the actual owner of the property. This one does not always result in a broken contract because the party making the contract has liability exposure, but if not all parties are listed, their hold out may bust the deal.
The most common mistakes arise when there are multiple owners. We all know we need both spouses to sign, but sometimes there are kids, siblings or co-owners that don’t actively participate in the property. If they’re left out, the contract is at risk.
The third common out is the financing contingency. Line 32 of the July ‘18 RE-21 reads “This Agreement is contingent upon BUYER obtaining the following financing[.]” The usual fact pattern is just before closing the buyer backs out, citing this contingency. Sometimes it’s for legitimate purposes, sometimes it appears the buyer is playing games, but the seller is always upset.
The seller also always points to the lender approval letter, seemingly believing this ended the contingency. We know it does not. If you want to end this contingency, end it. Add a provision that the contingency will end at a certain time.
Section 4 of the RE-21 is my fourth most-common problem source. Often, I see agents adding the phrase “this offer is contingent on an inspection.” I believe agents see the phrase in other deals and so believe it must mean something, and it does. It means you’ve created a new contingency.
Section 10 of the RE-21 already has an inspection contingency, so if you mark the right box, the offer is contingent on an inspection and Section 10 walks the parties through a very detailed step-by-step process. Your new contingency has no end date, so a buyer looking for an out may claim this contingency is not satisfied and terminate the contract. Because of the contingency waivers in the RE-10, this argument may fail, but the concern remains and applies to any contingency added to the contract. Avoid duplicating concepts already addressed in the forms and, when drafting contingencies, consider adding end dates.
My final tip is to encourage your broker to attend the First Friday Broker Forum. Getting to know your fellow practitioners leads to better relationships and better deals, and we all want that.
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This article is for educational purposes only and is not intended to be legal advice. Every situation is different, and you should consult with your own legal counsel before acting on the matters discussed in this article.
Tim Tyree serves as legal counsel to BRR and is the principal of Tyree Legal, PLLC.
