Guest blog: the power of the contract

November 1, 2023
Walt Hennessee

This is a brief summary of contract negotiation written for Realtors by Walt Hennessee. Walt Hennessee is a local broker and instructor in Huntsville. He is not an attorney and the following post is not to be taken as legal advice. This summary does not cover all aspects of the contract. It is only to be used as a quick reference and easy guide for those who are unfamiliar with these concepts and are seeking basic information.

The Financed Sales Contract and the Cash Sales Contract are the only two forms available in the MLS that contain the word "contract." All other forms contain the word "agreement." You and I can enter into an agreement to sell or purchase a property; does that mean we have the means to legally transfer ownership? No -- it takes a contract, which spells out all of the enforceable terms and conditions regarding the purchase/sale of the property. A good way to look at it is that a contract is an agreement, but an agreement is not necessarily a contract. If you do not get anything else from this post, always keep this in mind: If it is not within the four corners of the contract, it does not exist!

A good real estate agent will study and understand what is in the contract and, more importantly, what is not in the contract. One should not try to change the pre-printed form that has been prepared and reviewed by legal authorities; all changes to the contract should be done in the Additional Provisions or via an addendum to the contract. For example, in the pre-printed contract, it states the earnest money is to be held by the brokerage that represents the Buyer. To change that, write in the Additional Provisions "Earnest Money to be held by closing attorney," for example. This will override the standard contract wording.

If you have been a real estate agent for any length of time, you will find that the Request for Repairs causes the most problems between the Buyer and Seller. Most home inspections are done after the contract is negotiated. For “AS IS” properties, I always recommend getting an inspection before you submit an offer. This will give you a way to submit an informed offer as to your valuation based on its condition. Remember the definition of AS IS: What you see, and the condition it is in at the time you sign the contract, is what you are buying.

Another complicated issue that comes into play is in the area of health, safety, and structural. The home inspector is there to report what he sees and he is not qualified to say the property definitely has structural issues, for example; this can only come from a licensed structural engineer. So, before you tell the Seller his property has structural problems, you need to have a valid report stating that is the case. Same thing with health and safety. A house built 40 years ago was constructed according to the city or county code at that time. Unless the property has gone through a major renovation, it is not required to meet current code.

Paragraph 4.a spells out what the seller is contractually obligated to deliver in normal operating condition, meaning it is “doing its job” without any problems or issues. You need to start managing your Buyer clients' expectations for repairs before you even submit an offer.  Anything not specifically contained in paragraph 4.a will need to be addressed separately in the Additional Provisions. As an example, if you see a big hole in the wall in the living room, ask your client if they want it to be repaired. If they say, "Of course, I do not want to buy a house with a hole in the wall," tell them we will have to put that in the Additional Provisions. Go through the house looking for items not in paragraph 4.a to put in the contract. Some common examples include: broken tile, rotting wood, torn screens, vacuum loss in windows, etc. That way it is negotiated as part of the contractual agreement between the parties. When you receive the home inspection report, it is going to contain all of the problematic issues with the house and attached garage. If you have not explained that the only thing the Seller is required to repair is contained in paragraph 4.a and they can say no to any other requests, your client is not going to be happy with you.

I hope this post will give you information to be the professional Realtor that you are. Good selling!

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Walt Hennessee, CDEI, CREI

Owner/Broker, Zeriss Realty

Administrator/Instructor, Zeriss Institute



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November 1, 2023
Walt Hennessee
(256) 427-2760
(256) 427-2751
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