Stay out of trouble when writing purchase agreements by avoiding these pitfalls
The Standard CAR and PRDS agreements are constantly updated and vetted in an attempt to ensure that they are clear and avoid dispute. However, there are times when addendums or custom terms are needed, and this can be where things go south.
If a transaction starts to go south, buyers and sellers will look for whatever advantage they may find in arguing their position. We have seen those arguments stemming from poorly-worded addendums countless times, which then leads to the client trying to point the blame to the agents.
Examples of disputes that we have seen arise from “custom” language added beyond the four corners of the standard forms include:
- Ambiguous verbiage for agreed upon repairs/improvements. For example, a buyer of a spec home wanted the seller to install several TVs and closet organizers. The seller, naturally, opted for very basic materials and improvements. The buyer expected the sellers to spend in the order of $15,000 on a custom closet. The language added in the addendum had no specifics, no price range etc. A dispute about the scope of the improvements followed, which jeopardized the sale and led to both parties seeking the agents chip in to resolve the dispute.
- Lack of clarity on financing terms. Issues with seller carry-back terms, taking liens on other properties etc. can get quite complex. The standard forms for the seller financing are helpful, but when agents start inserting more complex arrangements, nightmares may ensue.
- Rights related to use of the property or a portion thereof. Sometimes the standard license or lease-back forms do not address what the parties may have negotiated. For instance, what if the seller just needs to use the garage (or some other part of the property) for storage, or only needs to rent back an accessory dwelling? Agents may try and craft language to address this, without considering all the potential issues and liabilities that may arise (for instance, what if there is an injury on the property, break-in, or someone refuses to leave)? If the language in the addendum or contract does not address these situations, you can have a dispute.
These are not intended to be inclusive of all of the things that can go wrong, but examples we have seen. The bottom line is, anytime you are adding language that goes beyond “filling the blanks” of the CAR/PRDS etc. forms, be wary of over-stepping your bounds. These situations may require you consult your broker and counsel to ensure adequate protection of you and the client, and avoiding any claims that the agent was “practicing law” by drafting contractual terms or otherwise putting the client in a precarious position.
Protection of yourselves is critical here. Clients will look to whoever they can to blame for contractual issues, and you better believe that the first person they will look to is the agent/broker. So, when encountering an “unusual” contract or custom issue, always be sure to get a second opinion and assistance on the language to avoid any future dispute.
Simon Offord is the managing partner of Brewer Offord & Pedersen, LLP, a real estate law firm in Palo Alto. Simon’s practice focuses exclusively on real estate matters, and Simon has a long history of representing real estate professionals and their clients in both litigation and transaction matters.
