Contracts You Probably Shouldn’t Sign

For the most part, real estate contracts are standardized. If you work with a Realtor who is a multiple listing service (MLS) member, you can be assured that the sales contract has certain elements intended to protect you.

You can be sure that the contract has contingencies that allow you to terminate if an inspection reveals scary things, if the title search reveals ownership or lien issues, if your financing suddenly fails or if the appraisal does not find that the house is worth the agreed-on price. All of these routine contingencies allow you to get your earnest money refunded to you.

But not every contract is MLS-approved. A notable example: The new construction contract drafted by builders’ lawyers and used mostly by non-local builders.

If you buy a house in one of these new subdivisions, then you can be sure that your rights as a buyer will be curtailed, and in some cases, completely eliminated.

The latest contract out of Lafayette is a perfect example, eliminating the inspection contingency, substituting language that allows the builder to decide whether he will correct the issue or not and preventing the buyer from delaying closing until the repair was made. In this contract, a buyer would not have the right to terminate the deal based on an unfinished repair, either.

The same contract also eliminates the finance contingency, so if the buyer were suddenly denied financing even after being pre-approved (it happens, and most of the time it’s not the buyer’s fault), OR, if an appraiser finds that the house is not worth the agreed-upon price and the loan is denied, the builder could take the buyer’s earnest money, which was required to be a minimum of $5000.

Both of these provisions, while definitely hostile to buyers, are not even the worst the contract has to offer.

The buyer is also required to waive any future right to sue over construction defects – no matter how serious — and to prevent any legal action by a FUTURE BUYER for the property.

The crown atop this legal monstrosity: A gag order. A buyer would not be allowed to talk about any legal skirmish with the builder. This ensures that the lousy reputation that a builder might deserve may never be known by the next buyer.

Now, I don’t like telling buyers what to do. I am their broker, not their mom. And some people, knowing the risks, will still choose to buy. But, if you sign this contract and something bad happens later, the least you will lose is your earnest money.

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