In some states like New York, a real estate attorney needs to draft a home purchase contract. In other states like California, real estate agents prepare purchase contracts using preprinted contracts that were created by attorneys.
The preprinted contracts have blanks for agents to fill in the price and terms of the offer. Real estate agents can also prepare addenda to the contract as long as they are not complicated and don’t require legal expertise. If a legal document, like a release of claim or liability is to be a part of the contract, it needs to be drafted by an attorney.
Buyers who are buying in states where agents use preprinted contracts often don’t need to retain a real estate attorney during the course of the transaction. However, real estate agents who aren’t also attorneys can’t give legal advice. If an issue comes up that requires a legal opinion, the agent should refer his or her clients to a real estate attorney for assistance.
Sometimes agents forget that they’re not attorneys and give legal advice when they shouldn’t. This is partly because buyers and sellers often don’t want to pay for an attorney. So, they pressure their agents to come up with an answer to their questions. This often comes up when buyers or sellers need to decide whether to include a liquidated damages clause in the contract relating to the buyers’ earnest money deposit.
If included, the liquidated damages clause limits the damages that could be awarded to the sellers if the buyers fail to complete the purchase for a reason that is not allowed in the contract. This could occur if the buyers didn’t close the transaction after they removed all of their contingencies.
Agents can explain the liquidated damages clause to their clients, but they can’t advise them whether or not to include the clause in the contract. If the clients can’t decide, they need to consult an attorney.
To avoid hiring an attorney, buyers and sellers often ask their agents what most buyers and sellers do about liquidated damages. Even if most buyers and sellers were to agree to a liquidated damages clause, this wouldn’t mean that it’s in the best interest of every buyer and seller to do so. …CONTINUED
HOUSE HUNTING TIP: You should seek legal advice if you have any unanswered questions about documents you’re asked to sign during a home purchase or sale. You may want a lawyer to review your contract before you sign it. Or, you could include a contingency in the purchase contract for your lawyer to review the contract.
This contingency should have a short time frame. Buyers want to make sure they have a binding agreement before paying for inspections and mortgage origination. Sellers want to know they have a firm deal. If not, they want their home back on the market quickly.
When buyers back out of a contract, the sellers often assume they’re entitled to the buyers’ deposit. This is not always the case. A real estate agent is not qualified to determine whether his or her clients are entitled to the deposit.
In one case, after the buyers pulled out of the deal, the listing agent told the sellers that the deposit was theirs. A lawsuit resulted. The judge ruled in favor of the buyers. The real estate agent should have referred her clients to a real estate attorney for a legal opinion as to who was entitled to the deposit.
Before backing out of a contract, seek legal counsel to determine if you can do so without penalty; otherwise your deposit could be at risk.
THE CLOSING: Skipping legal advice when it’s indicated, just to save money, could cost you more in the long run.
Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer’s Guide."
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