The Real Estate Contract

Chances are the real estate agent will not explain the sales agreement to you, any of it.  So it’s important that you take the time to familiarize yourself with the contract and its terminology. Homebuyers who fail to read or fully understand the purchase contract are more apt to be cheated during the sale. It is usually Ex Post Facto that homebuyers discover their mistakes.

In 1973 I needed advice when buying our second home. The real estate agent and seller told us that the basement in the home we were buying had never leaked, and that the house never had termites. Young and naive we believed them. We moved in and after the first heavy rain a canoe was needed to get around in the basement. I moved a large workbench in the basement to get to some water on the floor and found termites eating on timbers. The real estate agent had gotten a termite-free letter from a friend in the termite business only 30 days earlier, which stated that the house did not have termites or termite damage. From that day forward I have never trusted or believed much of anything real estate agents have to say.

Our study (1998-2002) shows that only three homebuyers out of 1,750 read the entire contract before signing it. Less than two out of three homebuyers who read the contract understood it. They trusted real estate agents who stood to make a great financial gain from the sale during the transaction. It is important that homebuyers enlist the help of someone who serves to protect their interests alone.

Tip:  Write your own contract or significantly modify a contract used by real estate agents.

Closing Attorneys

  • You have the right to choose your own closing attorney.
  • Do not allow a real estate agent to choose your closing attorney.
  • All closing attorneys offer you time to read each closing document.
  • Read every document the day before closing. You are paying a hefty fee to the closing attorney (in the mark up of the house).  
  • Plan to spend 2-6 hours at a real estate closing. After all it is your money, so don’t allow yourself to be rushed through the closing.  

Earnest Money
Earnest money is not required by Georgia Law, yet homebuyers give it to real estate agents and risk losing every penny of it.

If you must give Earnest Money, give only the amount you want to lose!   

Real estate investment seminar 

The average amount of Earnest Money handed over to real estate agents is $5,000 per contract.  Real estate investment seminar   

If earnest money is not required by Georgia Law, why do real estate agents ask for it?

  • They know you will give it to them.
  • They make interest off of your money.
  • Earnest Money is powerful leverage that is used against homebuyers. The fear of losing earnest money is a principle reason why many unwanted houses are bought. Most homebuyers do not have another $1,000-5,000 dollars to put down on a second home if the first earnest payment is tied up.  

Thousands never get back earnest money handed over to a real estate agent, so be sure to read the contract, and protect your investment.

Q & A:  What is Earnest Money?

A:  “Earnest Money is a sum of cash that you pay to the seller at the time you make a written offer to prove that you are sincere in your desire to purchase his or her property.”  John Adams, Atlanta Journal-Constitution, Sunday May 26, 2000
Mr. Adams should have used the term Sales Agreement, not OFFER.

Q:  How much Earnest Money is required at the signing of a contract to purchase property in Georgia?

A:  “Earnest Money is not required by Georgia law.”
John Adams, Atlanta Journal-Constitution, Sunday May 26, 2000

Q:  How much earnest money is appropriate when the offer or contract is submitted?

A:  “…a thousand dollars of earnest money is customary in the Atlanta market. There is no reason to offer more.”  John Adams, Atlanta Journal-Constitution, Sunday May 26, 2000

Q: Who is custodian of your Earnest Money?

A: “…the real estate agent representing the seller. She/he will place the Earnest Money in his or her escrow/trust account where it is held on the seller’s statement”
John Adams, Atlanta Journal-Constitution, Sunday May 26, 2000

 Q: Is your Earnest Money drawing interest while in the broker’s account? If so, is the interest applied toward the purchase price of the house; when will it be returned?
A: Yes, it does draw interest if placed in an interest bearing account and,

No, it is not applied to the purchase of the home and, 
It will not be returned. Interest money goes to the broker - not toward the house, the seller, or to you. 

Tip:  You have the right to remove the provision that allows the broker to receive interest from your earnest money. 

Two of many ways agents use your earnest money:

  • To put the squeeze on you to close on a house and protect their enormous commission fee.
  • To make money off of your money. The longer they have your money in their interest-bearing account, the more money they make.  

How much money can a national real estate company make on homebuyers’ Earnest Money?
As an example, let’s say XY-ZY Realty has offices in Atlanta, New York City, Denver, Miami, and Chicago.  Let’s suppose each location has an average of 10,000 homes under contract at any given time, and that each contract has an average $5,000 earnest money with all the earnest money being deposited into a designated interest-bearing account.

Multiply the number of metropolitan areas (5) by the total number of contracts (5 locations x 10,000 = 50,000 contracts). Now multiply 50,000 earnest money deposits by $5,000 and you get $250,000,000. That’s only five cities, and $250,000,000 does not include the interest that the agency is making off $250,000,000 of your money.

Don’t just read the Earnest Money clause, study every word and understand it.

Stipulate on the sales contract that all earnest money will be returned to you within 36-48 hours upon written notification to seller or seller’s agent that purchaser has terminated the sales contract. 

“AS IS” Purchase
Many people buy merchandise “AS IS.” If you don’t know the “as is” condition of something, wouldn’t it make sense to find out before you sign a legal contract to buy it? Find out what the “as is” condition is up front.

Once you know the “as is” condition, you may not want to buy the home. Watch out for that clause in the sales contract!  

Smart homebuyers ask for everything in the home inspection report to be fixed or replaced prior to the sale or for a sum of money to offset repair costs. Many ask for a price reduction of the home. Every dollar not spent on repairs before closing will end up costing you after closing.

If you are not satisfied with the condition of the house after the home inspection or if the seller doesn’t pay for requested repairs, you may want to take immediate action and terminate the contract. Ask for your Earnest Money to be returned immediately. Remember - the Broker holds your earnest money, not the seller.

Do not allow agents and sellers to drag out the motion proposition clause while at the same time squeezing you for every penny they can get. Watch out for that clause in the sales contract!  

According to Webster Dictionary, the definition of structural is: “of, relating to, or affecting structure, stability; used in building structures.” Agents will often say, “That’s not structural” to just about everything in a home inspection report. You must ask yourself - is cracked and peeling paint, broken glass, broken doorknobs, sagging ceilings, burned out furnaces, and worn out roof covers not structural? Strike the word STRUCTURAL from the contract.

Don’t allow agents tell you what is or is not structural. Everything is structural. Watch out for that clause in the sales contract!      

The word “DEFECT”
According to Webster Dictionary, the definition of defect is: “shortcoming, imperfection, want of something necessary for completeness.”

Don’t allow yourself to be a party to a contract that defines defect. Strike the word DEFECT from the contract. You should know what a defect is but if you don’t, you will certainly find out spending your hard earned cash. Watch out for that clause in the sales contract!      

Property Use and Abuse
Watch out for any contract that forces you to accept used and abused property. Cosmetic repair is very costly and should be given serious consideration before signing the contract. If not, it’s possible that after closing you will end up paying $12,000+ to paint the interior of a house, $10,000+ to replace a worn out roof,  $6,000-$10,000+ to sand and refinish solid wood floors and so forth. Why sign a contract that forbids you to require these items to be repaired or replaced? 

Do not allow an agent to tell you that you cannot ask for repair or replacement of worn out items. If you don’t ask for worn and abused items to be fixed or replaced, why are you having the home inspected? Some contracts may use the terms “normal use and abuse” while others may call it “wear and tear.” Watch out for that clause and STRIKE it from the sales contract!      

Refusal to Accept Responsibility

Be aware that some real estate agents will include a Refusal to Accept Responsibility clause (some contracts may use the word disclaimer) in the contract. The clause states that you are not to depend on anything agents say to you in confidence. Look for, read, and understand the Refusal to Accept Responsibility or Disclaimer clause in the contract. It is buried deep in pre-printed contracts used by real estate agents and is seldom read or understood, and agents never mention it. By including that clause, the agent in essence is saying; DON’T BELIEVE ANYTHING I TELL YOU.  STRIKE this clause from the contract.   

Buyers Broker
The Buyers Broker concept is nothing more than bait on a hook.  It’s a clever idea real estate agents have come up with to win your confidence. Once you sign that contract, you’re stuck with that agent whether you like it or not.

Consider this: The seller pays the Buyers Broker commission fee. So who is the Buyers Broker really working for? Doesn’t Georgia Real Estate Law require real estate agents to represent the person paying their commission fee?

Don’t believe anything the agent has to say. Get answers yourself and write your  own purchase contract or hire an attorney to write it for you.

Don’t think that contracts are written with the homebuyers’ interest in mind. They are written to benefit sellers and enormous commission fees paid to real estate agent.

Beware of that toothy smile. It sells a lot of bad houses and misery after the sale.

“The law does not require sellers to disclose every past repair made to their home, rather, they must inform potential buyers of current defects of which they are aware.”
        Ainsworth v Perreault, 254 Ga. App. 470,563 S.E.2d 135 (Ga. App. 2002), from the Superior Court of Fulton County, GA.

Jeff Pope Home Inspections, Inc.® - Copyright 2009 - All rights reserved.
Nothing on this website is to be taken as legal advice, contact your attorney for legal representation.