A Hard Look at the Fine Print
There’s something comforting about a legal contract. And with the reams of documents involved in buying and selling a home--consuming more paper than virtually any other transaction most of us will ever do--there’s something supremely reassuring about all the legalese written into a real estate deal.
If a problem arises during the sale, it’s easy to believe that there’s no reason to worry, because it’s all in writing. Yet as many home buyers and sellers have learned, real estate contracts are often not worth the paper they’re printed on.
Carefully negotiated agreements can crumble before your eyes as a seller reneges on performing agreed-upon repairs or fails to disclose potential defects, unpermitted construction or zoning violations.
Often, this happens after the sale is completed or as escrow is drawing to a close. Scurrying to pack and move, the current home already sold and the school year about to begin, the buyer may have no time to start looking for another house.
Stressed out and faced with renting a temporary apartment for a few months or settling for less than the ideal home, it’s easy to swallow one’s pride, to capitulate and close the deal, hoping not to spend too much money on unexpected repairs, perhaps expecting to make matters right in the courts, after the sale closes.
That’s what happened to this writer.
After a tortuous negotiation with an out-of-state seller, we came to an agreement on the purchase of a home in a desirable area of Los Angeles.
The contract carefully spelled out both the buyer’s and the seller’s responsibilities. Those included the seller’s agreement to repair termite and roof damage, fix shaky railings and clean the carpets.
Yet as the weeks of escrow moved on, little of the work that the seller had agreed to do had actually been done. Roof repairs were not completed. Shaky banisters were not fixed.
Faced with a very costly termite eradication bill, the seller ignored the company’s report and already-agreed-upon repairs and declared that he would instead fix only those things found on a much less costly, second inspection by a competitor.
Yet, on the day of the walk-through, even those things hadn’t been done. His response: Either accept the repairs he did or he would withdraw from the sale. With our house sold, there was little time to attempt to renegotiate, to threaten legal action or to walk away from the deal.
“It doesn’t matter if you have the perfect [real estate] contract, because a contract is not self-enforcing,” said Llewellyn Chin, senior counsel for the California Assn. of Realtors, a trade group representing the majority of the state’s real estate brokers. “A buyer has to follow up with litigation if he or she feels wronged in a transaction.”
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The realty group has created the most widely used contract for real estate sales in Southern California, the eight-legal-page Real Estate Purchase Contract and Receipt for Deposit. It covers all aspects of the purchase, including sales price, the amount of deposit, inspection and repair requirements, and resolution of disputes.
While virtually every Realtor in Los Angeles relies on this form, there’s nothing that mandates its use. There are only a few “statutory” requirements required by law, including disclosure of the existence of lead-based paint and earthquake and flood zones, plus the proper strapping of the water heater.
In addition, the buyer must be furnished with a Transfer Disclosure Statement, which lists other “material” statements that could reasonably affect a decision to buy the house, such as whether the residence had earthquake damage or a leaking roof.
Those statements are solely disclosures. The seller has no obligation to fix anything other than the few items specifically mandated by law.
Other than those provisions, there’s little in the form that cannot be altered or deleted by either party. If you want to take all the Venetian blinds with you, demand that the buyer pay your closing costs and make the delivery of 10 pounds of M&Ms; mandatory upon the close of escrow, feel free to add those points to the contract.
And if you don’t like the contract at all, “have your lawyer draw your own up,” suggested Chin.
But the time to consider if the standard contract fits your needs is not when you’re in the middle of a negotiation, smitten by the house that has suddenly become the home of your dreams.
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As with any rational decision, the best time to make it is when there’s no emotional component attached.
“Taking out a significant mortgage and changing your residence are two of the most stressful actions we take in life, and we don’t think clearly when we’re stressed,” said Marc Field, an Encino-based psychologist and designer of a course in stress management for the Los Angeles Community College system.
“We lose perspective if we remain in an emotional state, and we’re likely to exercise poor judgment. When you’re negotiating a real estate contract, you need to give yourself time to consider every point, within logical time constraints.
“You can’t expect agents or sellers to have your best interests at heart. They’re not the people to look to, to be your caretakers.”
There are some practical things you can do to protect yourself as soon as you know you’re about to get in the real estate market.
Early in their house-hunting, even before the buying process begins, home shoppers should get a blank copy of the purchase agreement from their agent and study it to ensure that they understand all its provisions.
Based on our experience, it is important to ask yourself these questions:
* Are you happy with the form’s provisions for home inspections and subsequent repair work?
* Do you want the seller to make agreed-upon repairs or would you rather have a credit and do the work yourself?
* Do you want to offer a down payment in steps, making a final payment only after repairs are done?
* Are you willing to forgo court action in favor of mandatory arbitration and liquidated damages?
These are not decisions to be made in the heat of house-buying passion.
“I always tell brokers that my client must have 48 hours to read any document before we’re willing to sign it,” said Joy Simmons, senior attorney for the Legal Aid Foundation of Los Angeles’ Homeowners’ Unit. “And I put that in writing. There’s always some little fee or other item that pops up that you weren’t expecting.”
Simmons’ clients--low-income individuals who also may not be fluent in English or familiar with the law--often find themselves unwittingly purchasing a piece of property that may be improperly zoned for multiple dwellings or have been built without the proper permits.
“Everyone wants the sale completed as soon as possible, so corners are cut,” Simmons said. “My clients are often told by agents that they can do whatever they want with the property and only when it’s too late do they find out that that’s not true.”
For Simmons’ clients, the courts often stand as the only remedy. But going to trial offers little hope of an equitable resolution for any home buyer.
“We’ll typically be in court for two to three years. We may get a judgment against the seller, but then there’s little you can do to actually collect the money,” Simmons said. And if you’re suing an out-of-state individual through small claims court, the chances of collecting are even less.
Buyers and sellers can agree to avoid court fights and submit to arbitration. Arbitrators recommended by one of two professional organizations will hear the case and make a binding decision on the parties.
Unlike a court case, there are no rights of discovery in the arbitration process, nor can parties to the dispute be deposed. And the ability to collect on a judgment, whether decided through the courts or arbitration, remains dicey at best.
“There is no way to force somebody to do something,” said real estate attorney Sam Manfredi of Westlake Village. “You cannot get a court injunction against them. There is only so much you can do when the other party is being unreasonable.”
Clearly, the best way to deal with an intransigent or dishonest property seller is to arm yourself with enough information to avoid getting into a fight in the first place. And the time to do that is months before you get bitten by the home buying bug at all.
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More Advice From the Experts So what’s the best way to avoid becoming a victim of a difficult or unscrupulous seller of property? Here is some more advice from the experts:
* Meet the seller of the property. If a problem crops up later, you’ll be able to deal directly with the property owner, rather than through third parties who may just want the deal to close quickly.
* Don’t rely on the seller to make agreed-upon repairs, advises attorney Manfredi. Get a credit from the seller for their cost and do them yourself.
* Speak to the neighbors about your seller and ask if they’ve had any problems with him or her.
* Don’t rely on a single inspector to accurately assess the quality of the house. If you’re concerned about the state of the roof, for instance, have it inspected by a trained roofer.
* If the negotiations are not working out to your satisfaction, be willing to give up the purchase and look for another house.
