Congratulations! You’ve decided to make an offer on that four bedroom home on the corner lot just a few blocks down the street that is being sold By Owner. As you and Seller are negotiating, you find out that he’s a Bison fan, too! What are the odds? You quickly agree on a purchase price you are both comfortable with. You are feeling good about the fact you have avoided the expense of a realtor and feel even better when Seller tells you he has sold properties before and has a purchase agreement form you are able to use, saving you the expense of having an attorney draft the purchase agreement. Seller emails you the purchase agreement a few days later, tells you to email him a signed copy within the next week after your attorney has reviewed it. You read through the purchase agreement and see that the purchase price, earnest money amount, and closing date are all correct and decide to forego having an attorney review the agreement in order to save a few bucks. You figure the agreement is fair since (a) the terms you agreed upon are correctly set forth in the agreement and (b) the Seller encouraged you to have an attorney review it and he would not have done so if he did not think it was a fair agreement.
A few weeks later the appraisal is completed: the home appraises for $30,000.00 less than the purchase price and your loan is denied due to the low valuation of the home. After informing Seller that you are unable to purchase the home you ask him to return the earnest money. Seller informs you he is keeping the earnest money because the purchase agreement does not contain a clause making the purchase contingent on the property appraising for an amount equal or greater than the purchase price. To make matters worse, Seller sells the property for the next best offer, which is $30,000.00 less than the price for which you were going to purchase the property. Seller is now suing you for $30,000.00 (the difference between your purchase price and the next highest offer) since the purchase agreement contains a clause allowing the non-breaching party (Seller) to collect damages from the breaching party (you). You’re thinking, “how could this get any worse?” Well, the purchase agreement also contains a clause that allows the non-breaching party (Seller) to recover his attorney’s fees from the breaching party. Not only did you lose your earnest money, but you are now being sued for $30,000.00 and, if you lose, you will have to pay both your and Seller’s attorney’s fees.
Because real estate purchases are so common and occur with such high frequency some people believe a stock purchase agreement form will suit their needs, which, as set forth above, can and does become an expensive mistake. A purchase agreement should be tailored to your specific needs and situation. Purchasing a home is the largest investment most people will make; protect yourself and your investment by having a real estate attorney assist you with the transaction.