“Read the fine print before signing.” We all know that admonition. So, now you are about to buy or sell a house and will sign a purchase contract. Will you be the rare one to read the entire thing?

Some readers will wonder why I would bother writing an article about picayune changes in a real estate contract. The fact is, real estate is a business of details which do not matter until they affect you.

Often, people get somnolent when they think about real estate purchase contracts. Instead of reading it themselves, they depend on their agent to interpret it for them. That means you, as a buyer or seller, must choose an agent who is not only familiar with the contracts presently in use, but the new one as well. Once again, the California Association of Realtors residential contract (one to four units) has undergone some alterations.

The good news is that, once the supply of old contracts is used up, only the newly revised one will be available.  One of its significant improvements is that there is no longer “boilerplate” language on the back of pages where it is likely to be missed or disregarded.

The new contract is called a five-pager, but it is actually a minimum of six. As always, the number of pages is less important than which provisions could negatively impact you as either buyer or seller. Read on for some “plain English” explanations.

Possession

If you are a buyer who intends to occupy the home upon close of escrow, you want to make sure not to close if a tenant is still in possession. Inheriting a tenant you did not plan on can be very stressful.

Wording in the four-page contract allowed the buyer to cancel the contract if the tenant had not vacated by close of escrow. In the revised contract, that wording has been eliminated. For your protection, state an exact number of days before close of escrow and/or a specific date by which the tenant must be out.

Seller repairs

Have you ever walked into a house that appeared to be nicely remodeled? There are times when some or all of the work was done by or for the seller without permit and not necessarily to code. This is one reason why there is a statement in the new contract which says: “Property improvements may not a) be built according to codes or in compliance with Law, or b) have had permits issued.”

Take this to heart. It is a warning for you as a buyer to carefully read the seller’s Transfer Disclosure Statement. Have your agent explain the pros and cons of repairs or modifications done by a seller himself.

As a seller, doing work on your own, or hiring someone to do it, can save you money. Just be aware that taking shortcuts by not getting permits could result in liability and, possibly, additional expense for you.

Liquidated Damages

This clause only comes into play when initialed by both buyer and seller. It presets damages in the event the buyer defaults and fails to complete the sale. Usually, this means after all his contingencies have been removed in writing. An important part of the Liquidated Damages clause, which helped to minimize misunderstandings, has been eliminated.

It stated: “In the event of a dispute, funds deposited in trust accounts or escrow are not released automatically and require mutual, signed release instructions from both buyer and seller...” Without this clarification, a seller might expect to automatically get the money if he and the defaulting buyer had initialed Liquidated Damages.

Other Changes

In addition to those highlighted above, the new contract contains a number of alterations in wording and format. For example, there have been amendments to the mediation and arbitration clauses. Ask your agent about these and other changes in relation to your situation. I cannot emphasize enough the importance of choosing a technically competent agent to work on your behalf.

Final thoughts

I continue to be astonished at how many buyers and sellers are willing to sign contracts they do not fully understand. As I tell my clients: buying is more than a treasure hunt for the right house; selling is not just marketing to find a buyer. Don’t wait until you have a dispute before you appreciate your responsibility for what you sign.

Related Articles: Another New Contract, Part 1 and Part 2; Not Just Termites, Part 1 and Part 2; Home Inspections, Part 1 and Part 2