You’re only as good as the contract you write, whether you’re buying a house, negotiating a loan or selling a service or widget.
In these days of DIY, plenty of folks have struck out on their own.
And more power to them. If they’re willing to do the homework, ask the what-ifs and lock down details.
Some details might not be obvious to the run-of-the-mill DIYer, and the result can look a lot like the results of the 7 disastrously unfulfilled wishes in Bedazzled – not the 1990s remake, the original 1967 Dudley Moore – makes the song “You can’t Get Everything You Want” seem suitable.
Worse than not getting what you want is getting a many-thousands-of-dollars kick to the head.
Most folks will honor a contract, even one with a few holes. But there will always be the few that will scrutinize a contract for the purpose of finding a hole to wiggle through.
Here’s a fun one from real estate:
A DIY buyer comes upon a DIY seller and makes an offer that the seller accepts. The buyer begins doing inspections on the house as he had carefully and thoughtfully included in his contract. Things were looking good; the house was in good shape. Then came a call from the seller: He wasn’t going to be able to sell the house after all because a relative had died and her children needed a place to live; his house was big enough, so his plans to sell would be postponed indefinitely. He begged to be let out of the contract. The buyer being a kind-hearted soul agreed to let the seller terminate the deal.
Two days later, the property sold to someone who had offered the seller far more than the previous buyer. There never was a death, there never were any kids. How would the DIYer know different?
Answer: They wouldn’t. If you’re going to allow a seller Not to perform on a sale contract, you might consider getting something in return – like a first right-of-refusal to buy the property should it come available again in the next year. Record it a local title office. Why? Because the minute the two-faced seller tries to sell it to someone else, a title report will show your interest in the property. And also, anyone with plans to double-cross you would have trouble signing the first-right and will either fess up or give up on his new buyer.
How about this one: You sell something on contract. What if (let’s just say), your buyer damages or otherwise changes the item so that it loses value, and then fails to pay you as agreed. Most DIYers will ensure they included a means to repossess the item, but few think about assuring the condition of the item in the event return-to-seller becomes a reality. If the breeding dog is spayed by the new or future owner, let’s say. Or injured or under-nourished, costing you in vet bills. If the car is wrecked or damaged or turned into a low-rider. If the house is remodeled or maintained so poorly that major damage has occurred. If you’re going to be the bank or the landlord, protect your investment! Best way, deposits up front – big ones. Frankly, if they can’t pay the deposit, they will Never perform on contract. Second way – specific damages should the property be altered in any way and thirdly, write in some way for maintenance to be assured. Be aware that if you foreclose on a real estate contract, you can’t simply repossess the property even if your contract says you can. If the contract is written in violation of Oregon law, which prescribes specific steps to execute a foreclosure, it will automatically be unenforceable even if the buyer agreed to it and signed it. Also, contracts in real estate must be written And recorded.
Let’s talk loans. What if you’re the one who can’t pay? What rights does the lender have? Do the interest charges accrue yearly, monthly or daily? Are they added to the loan balance? This is the case with most subsidized student loans. Can the debt be levied against your house? What happens if the lender gets a judgment against you? What if you want to pay off a portion of your mortgage – is there a prepayment penalty, or will your loan be re-amortized if you pay off a chunk of it all at once? If you do not have a professional working for you, it’ll be up to you to Read Everything. If I have a pre approval letter that expires and my house deal isn’t closed, do my loan terms remain the same if it is extended (answer is, probably NOT). Do you have to remain with a lender if the terms change? Probably Not.
If you’re going to DIY a contract, remember the elements that should be there: money/terms, timeline, condition of item or service, enforcement for failure to perform any what-if, how will compliance be defined, timeline, what are the conditions of termination, establishing ownership and transfer of ownership, establishing conditions, how damages would be assessed and how will extensions be handled. Now: Imagine what the Worst Thing would be – let your paranoia run amok. Most people fail to write in sufficient enforcement for losses and defaults, afraid to jeopardize a deal. It is always better to scare off an unqualified buyer or kiss off a bad loan than tie yourself to someone or something who will cost you far more later on.