Legal jargon, one-sided, industry terminology, seemingly contradictory statements, run on sentences. I’m not writing about political figures or candidates! I’m talking about real estate contracts. Here are three places that “Buyer Beware” is your best attitude.
- Home builder contracts
I have written about this before, but my job as Broker allows me to see numerous builder contracts. I see how one-sided some are and am amazed at how any of them get sold. I read one today that did not allow for any contingencies. The Buyer has to have their loan approved within 20 days, or else. Once approved, there is no turning back. You may be thinking, “Well, duh. That makes sense.” But does it? What happens when 3 months goes by and your employer doesn’t have the funds to pay you any longer and you get laid off? What happens when the lender makes a mistake and didn’t apply all your debt correctly? What happens when closing is delayed because the house isn’t finished, your rate lock for your loan has expired and rates have increased just enough that you can’t afford the monthly payment. What happens when FEMA redraws the flood zone maps prior to your closing and now you are required to have flood insurance that is going to cost you $500/month? Too bad. You have to buy or you lose your earnest money and/or deposit (which is usually more than a few months worth of mortgage payments.) You can try to get the builder to write in a contingency but most of the time they will not allow it. They are taking a risk in building the house and they feel they should get some compensation if you can’t buy it. In hot selling markets, however, they are likely able to sell the house to someone else and may not even lose any time at all. They could even sell it for more money to the next Buyer, so they get to keep your money and make more on the sale. Win-Win for them! Buyer Beware.
- “Instant offers”
If you have your finger on the pulse of real estate at all, you have seen advertisements for instant offers and companies that will buy your house. “We Buy Ugly Houses” is a funny one I’ve seen. These companies will give you a cash offer on your home. This can be a wonderful idea. And, sometime, it can be a wonderful savior for you in the right situation. They also can have some hidden fees and not be a very wise financial move on your part. These companies have to make money. They are going to either turn around and sell or rent the houses they buy. So, it must make financial sense to them in order to make money and not lose. Therefore, you can already guess they are not going to give you fair market value for your home – even if the offer price looks like a good deal. Make sure you read the fine print and are positive of the bottom line (your net) from the initial offer. Then, you must consider inspection. These are not AS-IS sales so chances are, you will be reducing your net once inspections are complete, to cover any issues that are found. If you get through all of that and still agree to sell, you may be surprised at the sales price on the closing documents. The sales price could be the first number you agreed to. All of the fees and concessions come out of that and are reflected in your net sales price. Why would they do that? So they can resell it for more than what it looks like they bought it for! *(Disclaimer: not all companies will do this, but again, Buyer Beware.)
- Buying a house owned by an online company
When buying a property that has been purchased using one of these “instant offers” I mentioned above, remember why these companies want to buy these properties. They are in it to make money. Therefore, there could be inspection issues that were never addressed. They may have made the property look presentable and somewhat attractive, but there may be things lurking underneath the surface. There may also be additional fees a Buyer will pay to purchase one of these houses or be pushed to use certain lenders or title companies. Buyer Beware.
Be careful to read every line of real estate contracts. If you don’t understand what they mean, ask. Better yet, get the advice of a Realtor or a real estate attorney before signing anything. It may cost you a little bit to save you a lot!
Michelle Froedge is a residential Realtor and Principal Broker in the Greater Nashville and Williamson County areas of Tennessee. “Mom” to four-legged fur baby, Tyler, Auntie to Zelamie, she is a vegetarian and sings in her spare time. Michelle has lived in Nashville and Franklin since 1997 and has been selling homes since 2004.