SELLER BEWARE: PITFALLS TO AVOID
WHEN SELLING REAL PROPERTY

By Micah S. Echols, Esq.

When selling real property, a seller should be concerned about all the terms and conditions of the Purchase Agreement, not only the purchase price. Many sellers become so fixated on the price that they fail to carefully consider the other terms and conditions of the Purchase Agreement, which can potentially harm them if a dispute arises between the parties. Although most Purchase Agreements used by REALTORS® in Las Vegas are based upon a standard form, some REALTORS® modify language to their own liking. As such, there are literally hundreds of versions of the so-called “standard” Purchase Agreement, which appear to be similar, but in reality can be very different. One way a seller can control the inconsistency between the various versions is to use a version with which the seller is familiar. However, this may not always be possible. Therefore, a seller of real property should be aware of some of the major pitfalls to look for in considering a buyer’s offer:

● Earnest money deposit. Always ensure that the earnest money deposit is an amount sufficient so that if the buyer were to breach, the seller would be satisfied with retaining the earnest money deposit as the only damages.

● Extension of escrow. Beware of clauses which give buyers automatic extensions of escrow without the seller’s consent in writing. Such a clause may allow a buyer to string the seller along for much longer than is necessary. If the buyer requests an extension of escrow, the seller should consider requesting a fee or an additional earnest money deposit in exchange for the extension.

● Repairs. Any clause providing for repairs to the real property to be paid by the seller should always have a limit. If there is no limit, the seller runs the risk of having a buyer perform a “very thorough” home inspection which may include numerous repairs that really do not need to be performed.

● Mold inspections. Unlike home inspections, mold inspections can be very expensive. If at all possible, the buyer should bear the cost of any mold inspection that he wants performed. Any mold inspection clause should also require the seller’s consent in selecting the mold inspector. Although there are many reputable mold inspectors, there is an equal number of mold inspectors who do very poor work and who will deliberately inflate the actual cost needed to abate any potential mold.

● Handwritten provisions. Although properties are sold and purchased each day with complex provisions merely handwritten into the Purchase Agreement, this practice is dangerous. Although REALTORS® routinely fill in blanks in a standard Purchase Agreement form, a REALTOR® should not draft complex provisions that define the legal rights of the parties. Too many lawsuits are based upon vague, ambiguous, and often incomplete handwritten language in Purchase Agreements which the parties themselves or their REALTORS® have drafted. The drafting of such complex legal provisions is best left to an attorney.

● 1031 exchanges. Although a 1031 exchange may seem like a favorable option to a seller, there is potential for a buyer to abuse the 1031 exchange process. When performing a 1031 exchange, depending on the value of the properties involved, the buyer may actually designate multiple properties to be exchanged. Sometimes, the multiple exchanges can create a serious problem for the seller, given that the buyer may ask for multiple extensions of escrow while deciding whether the seller’s property will actually be exchanged. A wise practice, therefore, is to agree in writing that if the seller cooperates with a 1031 exchange, this cooperation is limited to the timeframe of the normal closing of escrow; otherwise, an additional earnest money deposit will be required.

● Due diligence periods. The due diligence period is generally agreed upon as the time in which the buyer may perform inspections and other inquiries to determine whether he is certain on his decision to purchase the real property. During the due diligence period, a buyer may cancel the contract without penalty. It is obvious, then, that a due diligence period should be as short as possible in the interest of the seller. However, the due diligence period should be reasonably long enough so that a buyer can actually perform his due diligence.

● Dating of documents. Although it seems elementary that every document involved in a sale transaction should be properly signed and dated, this basic task is often neglected. If even one or two documents are not properly signed and dated, considerable effort in litigation may be required to determine when the documents may have been signed in order to piece together a chronology of events.

Although sellers of real property may be extremely motivated to sell, the specific provisions of any offer to purchase should be given particular attention so that if the sale transaction is not successfully completed, the seller will have adequate protections for himself and his property.