Paperwork can be fun too!

Ok, I hate paperwork probably more than anyone out there, however, it is a must for success in our business. You have to master the paperwork, because everything starts there. All of this part of the blog got started because of comments regarding contracts, so that is where we will start. First of all there is a mentality to contracts that you must think about and figure out first. In any contract situation you must decide and think about what side of the transaction you are going to be on. This isn’t rocket science here, but if you are on the buying side you want your contract to be pro buyer, but if you are the seller it should be slanted to the sales side. The natural concept that most investors start out with is that the contract is what it is, and you can’t do anything about it. You must be able to read and comprehend the language in the contract first, and then you must not be afraid to change the wording to match what you are attempting to do. So now let’s talked about what makes a contract legal. The main ingredient in a contract is not technically “in” the contract at all. The first and most important thing that you need with regards to your contract is a meeting of the minds. This means that both parties have met talked regarding the deal that is going down and discussed the parameters of what will happen during the transaction. Once the deal has been discussed and the details are verbalized the reducing it to writing will happen, and this is where the contract comes in. After the meeting of the minds you must have a price that will be agreed upon. Terms of the deal come next and this can be the most diverse, but we get to that in a second. You must set a timeline for what is stipulated to happen, and then have consideration, what most people call earnest money. In most states consideration does not necessarily have to be cash, but it is in most cases. However there is not a minimum or maximum, so it can be as low or as high as you would like. Also during this process you want to stipulate to the title of the property, status of the property, or lack thereof (as is where is) along with any inspections that you may want to have completed. You must decide who will take care of closing costs, and in what percentages, along with where the closing will take place.So here are some easy questions for you to think about;If you are buying how much do you want the earnest money to be?If you are selling how much do you want the earnest money to be?If you are buying when do you want the closing to take place?If you are selling when do you want the closing to take place? Are there late fees associated? How about closing costs?What about inspections? How long before approval of the inspection if you are selling vs buying?Who do you want to be able to get into the property if you are buying?So as you can see there really are two sides to every story, and your side will determine how you want the contract to read. So if you have a realtor can you use your contract? Of course, there is not a requirement that says that you have to use a board of realtors contract. Many of them prefer not to “allow” you to use your own contract because they do not understand contracts, especially yours. One of the most important parts of your contract is in the signature line; under the line that you sign on make sure you add “Buyer and/or assigns”. This makes your contract assignable. These can be 4 very powerful words if used right. Some other good clauses for your contracts;A lien clause;Special liens against the property shall be paid by Seller, if any. *This makes sure that when you buy a property any additional encumbrances on the property will be taken care of at closing by the sellers, this applies to tax liens, or mechanics liens etc.A closing clause;The sale is to be closed within 30-45 days from delivery of copy of proposed deed and certificate of title to Buyer, or as soon thereafter as said insurable title can be effected, as hereinabove provided. *The additional time attached is from the receipt of the copy of proposed title which can add a week or so to your time to close, this also protects you if the title is not clear. Inspection clause;This contract is contingent upon Buyer’s inspection and approval of the property prior to transfer of title. The buyer reserves the right to personally inspect and give written approval of the described property within 15 working days after the acceptance of this contract by the Seller.*Another way to add time to your contract, by stipulating the time starting AFTER the approval of the condition of the property. BTW I have never given a written approval of the status of a property!A financing clause;This contract is also contingent on buyer obtaining acceptable financing for the subject property once said inspection has been completed. *This gives you an out if you cannot get suitable financing.A Deposit or Earnest Money Clause;Buyer will deposit with Doug Dunning P.C. at Advanced Land and Title Company 1659 Government St. Mobile, Al 36604 $500 as earnest money.Such earnest money shall be applied to the purchase price and shall represent all liquidated damages in the event that the property is notpurchased. *One key here is the liquidated damages, if you are not able to close this reduces your liability in the deal.An Acceptance Clause;This instrument shall become a binding contract when accepted by the Seller and signed by both Buyer and Seller. If it is not accepted and signed by Seller prior to 2 working days from the date mentioned below, this contract shall be void. *This gives the seller a deadline to perform by when you give them a written offer. As is Where is Clause;Seller and Buyer acknowledge that this is an “As Is” offer to purchase and Seller makes no warranties as to the condition of the electrical,plumbing, heating and air conditioning devices. Refrigerator, air conditioning unit, if any, and stove shall remain and are considered part of thesale.*As is where is and you want to stipulate to keep the appliances.Access Clause;Buyer shall be permitted access to the premises for, but not limited to, inspection and showing appraisers, contractors and inspectors.*You have to be able to get investors in to be able to sell something wholesale.Marketing Clause;Seller agrees to allow Buyer to Market the subject property in any and all ways including signage in the yard, MLS, flyers, and word of mouth.*This allows you to market the property and sell it before you have to buy it. This is what we call our Hurricane Clause;This contract is further conditioned upon delivery of the improvements in their present condition, and in the event of material damage by fire orotherwise, before closing. Buyer may declare the contract void and shall be entitled to the return of his earnest money, or Buyer may elect tocomplete the sale.*This is in case there has been damage to the property since you originally contracted it. Does not mean you can’t renegotiate though. These are some parts of my purchase contract that we use on a daily basis in my office, so it is tried and tested in battle, I am sure you can come up with otherthings clauses on your own that would work well. The key here is to not be scared to change things on your own and to try stuff out, I promise there is not anyway you can mess something up that you cannot fix. Just remember to read, it is all English after all.