This article is the second in a multi-part series on the use of attorneys in residential real estate transactions. This article gives some guidance on when a purchaser or seller of residential real estate should consider involving an attorney.
In the first article, Realtors Practicing Law, I explained how most residential real estate purchase and sale transactions are conducted without attorneys. Most of these transactions are successful in part due to the excellent standard forms realtors use to write up purchase and sale agreements. In Washington, these forms are produced by the Multiple Listing Service (MLS), to which virtually all realtors subscribe. These forms are drafted by attorneys and have been improved based on years of experience with residential real estate purchases and sales.
As I explained in the first article, realtors help their clients by selecting the MLS forms to use and by filling them in with the relevant information. In many, perhaps most transactions, no custom language is needed. There is still risk that mistakes in the selection and filling-out of these forms can cause problems. However, if your realtor is experienced or has experienced help, the risk is relatively low.
The risk increases when custom language is added to the purchase and sale agreement to address unusual situations that the MLS forms do not cover. For example, the parties may wish to add an unusual contingency such as the timely distribution of an inheritance to the buyer, or to add a responsibility that the seller will take on such as disposing of something currently on the property. Agreements may describe tasks that the parties will perform prior to closing, such as defining an easement that the seller will reserve on closing. Agreements also sometimes define the post-closing relationship between the parties, such as would occur if the seller is to retain possession of a portion of the property.
As with any contract, this custom language serves two purposes: (1) to prevent honest misunderstandings, and (2) to provide a basis for enforcing the agreement. While laypersons, and frankly many realtors, are turned off by too much language—dismissed as “legalese”—too little language can foster misunderstandings and impair enforcement. For most parties, these residential real estate transactions are the largest-value contracts they will ever enter into. Terms that are incomplete or sloppily drafted can cause problems that far outweigh the effort that would have prevented these problems.
Because my practice is litigation-focused, I see many transactions that have gone off the rails due to poorly drafted custom terms. As one example, a purchase and sale agreement had the custom language, “The Property is being sold ‘AS IS’ with no repairs or replacements conducted or performed by Seller.” Yet, the purchaser and sale agreement also included an inspection contingency as set forth in an included standard MLS form. The custom language was in conflict with the contingency. When the buyers sought a price reduction due to problems uncovered by the inspection, my new clients, the sellers, objected based on the “as is” clause. We worked this out, but one can see how these sorts of drafting errors can create problems in transactions.
Good real estate attorneys are able to work with proposed MLS-based purchase and sale agreements. Attorneys can conduct relatively inexpensive reviews of agreements and interviews of their clients. If needed, they can draft some short language to address unusual circumstances not covered by the MLS forms. While some situations require more than this, a buyer or seller usually needs not pay a lot of money to prevent agreement drafting problems. And, the attorney’s involvement can usually be limited to the agreement review rather than continuing through to the closing of the transaction.
My suggestion is to engage an attorney to review a residential real estate purchase and sale agreement whenever there is anything but very simple custom terms added to the agreement, or if there is something that feels unusual about the transaction. Ask the attorney for an estimate on the cost of performing the review. Also, consider engaging the attorney only for the review unless there is something about the closing that requires an attorney’s attention. This small cost could save you a large amount of money and a large headache down the road.
Stay tuned for more articles in this series.
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