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Contractual Considerations

Tuesday, May 14, 2013  
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Orlando REALTOR® | May/June 2013

Handle those confusing and
contradictory aspects of the
real estate contract with confidence

Craft a solid legal document that
protects your clients and your license

By Andrew Fisher, JD, MBA

The residential real estate market is heating up again, and the inventory of homes on the MLS is at its lowest levels in recent years. The properly priced properties (and some that are not!) that are available receive tons of attention and multiple offers.

Even without the added complications of buyer competition and distressed sales in today’s market conditions, licensed real estate professionals should always be careful when drafting and accepting purchase and sale contracts. But things are not always so straightforward. Here’s how to properly address some of the more confusing elements of the contract that protects your buyers, your sellers, and your license.

 Initial Escrow Deposition Time Frame

Licensees should all be aware of the importance of meeting the Florida law requirements regarding depositing escrow funds. The question often arises as to which checkbox should be used in section 2.(a) of the FR/BAR contract, regarding whether the initial escrow deposit:

  • 1. accompanies the offer;
  • 2. is to be made upon acceptance (effective date); or
  • 3. is to be made within "X” days after effective date.

Number 1 above may be a frustrating proposal if the buyer is out of town or has several houses on the short list. However it is not a bad option if the licensee’s broker has an internal escrow account, which makes it easy to turn over and deposit the funds when the offer is signed.

Number 2 above is troublesome these days for many reasons, including the technicality of determining the correct date for the effective date. If not properly determined by the licensee, the buyer may be in default of the contract and the licensee may be susceptible to failing to meet the escrow deposit requirements if the initial deposit is not deposited timely.

Number 3 above should be the most common form of handling the initial deposit. With Number 3, the buyer (and the licensee if their broker is holding escrow) has X number of days to ensure the initial deposit is properly delivered. The closing attorney or closing agent accepts the deposit directly from the buyer, so the liability of the licensee is greatly diminished. However, the buyer is still liable under the terms of the contract.

I am frequently asked how to handle the initial deposit time frame when a listing agent requires offers to include a deposit. In that case, the selling agent must ensure the proper handling of the initial deposit.

The Florida Real Estate Commission takes escrow-related issues very seriously, and escrow is frequently the subject of disciplinary action. For example, last year a licensee was disciplined and received six months of probation for not filling in the escrow agent information on the contract.

Maximum Interest Rate in the Financing Contingency

If a buyer is making the contract offer contingent on financing, there are several blanks to be filled in regarding the terms that the buyer is able to meet for loan commitment. The most concerning blank is the one dealing with the initial interest maximum, which calls for a specific percentage rate. Note however, that if this blank is not filled in (or filled in with "PREV” for prevailing rate), the default interest rate is the prevailing rate based upon buyer’s creditworthiness, not the general rates that are being obtained by other buyers.

Therefore, if the "general” market interest rate is X percent but the buyer has poor credit and is only able to obtain financing at X-plus-3 percent, there may be a question about the buyer’s ability to afford the house at such a higher interest rate. However, if the blank is not filled in or is filled in with the word "PREV,” the buyer’s inability to afford the payments is not considered a valid reason to terminate the contract based on not receiving loan commitment.

Notice of Loan Commitment

The FR/BAR Contract for Sale and Purchase contains various notification requirements. The notice of loan commitment is one of many important notices required under the contract that can have a significant impact on whether or not the deal closes, and whether or not one party will be looking to their licensee if the deal does not close due to a missed notification.

Generally, if the contract is contingent upon the buyer obtaining a loan commitment and the buyer does not receive the loan commitment, the buyer may terminate the contract and the deposit will be refunded to the buyer. However, for the buyer to terminate the contract and get the deposit refunded, the buyer must deliver written notice to the seller within the applicable time period. If the buyer does not provide the required written notification, the buyer is essentially waiving the financing contingency.

Unfortunately, it is not as simple as the deal going forward as if the notice was provided. If the notice is not properly provided by the buyer, then the seller (at any time after the loan commitment date and before the closing date) may terminate the contract by delivering written notice to the buyer, and the deposit shall be refunded to the buyer.

So what’s the difference? If the buyer does not provide notice of loan commitment and the seller obtains a better offer, then the seller may terminate the buyer’s contract.

Many Buyers, One Property

If you’re the listing agent of a short-sale property, you (or your sellers) may be tempted to accept multiple contract offers.  It is important to understand that the contract for the purchase and sale of a property is between the buyer and seller.

If a property is being offered as a short sale, the contract (preferably utilizing the FR/BAR Rider G., Short Sale Contingency) will be contingent upon the short-sale lender’s approval. However, the short-sale lender is not a party to the contract, and having more than one contract for the same piece of property can be a real liability for both the seller and the listing licensee if one of the multiple contracted buyers tries to enforce his contract (or takes exception – ethical or otherwise – to the listing licensee allowing the signing of multiple contracts).

On the other hand, there is nothing wrong with the seller signing a second contract when there is back-up contract rider (preferably utilizing the FR/BAR Rider W., Back-Up Contract) attached. Rider W provides that the second contract (i.e. the second or back-up contract) is subject to the termination of a prior contract between the seller and third-party buyer for the sale of the property (the current contract). Not until the current contract is terminated and the seller provides written notice of such termination to the back-up buyer will the back-up contingency be removed and the new (or second) contract move into first position and become an enforceable contract.

In conclusion, it’s always prudent to be on the safe side and advise your clients that a properly executed contract is a set-in-stone, legally binding document and should be reviewed by an attorney before they sign.



Andrew M. Fisher, Fisher Law, P.A., is a Florida Bar Certified Real Estate Attorney, the president of the Central Florida Real Estate Attorneys Council, and a frequent ORRA instructor. He can be reached at



Contracts and the Unlicensed Practice of Law

The unlicensed practice of law (UPL) concept was established by the Supreme Court of Florida to protect the public. It’s also a concept that frequently trips up real estate licensees.

The court has held that a real estate licensee should be restricted in the drafting of papers to those such as a memorandum or deposit receipt. Generally, if a licensee is simply filling in the blanks on forms contained in TransactionDesk or Forms Simplicity, then there should not be any UPL issues. The potential for problem arises when a licensee writes in additional terms, crosses out or changes preprinted language, or, as we’ll discuss in depth later, explains the legal significance of certain terms contained in a contract or other form.

Licensees will most likely not be found guilty of UPL if cross-outs or changes pertain specifically to a fact. For example, changing the numbers of days to perform an inspection or writing in a disclosure that the seller is a licensee (which is required under the Code of Ethics), should be fine. However, drafting language about back-up offers or writing kick-out clauses regarding below-price appraisals are examples of actions that would most likely be considered UPL. The good news is that most of the issues commonly addressed in handwriting by licensees are contained in Florida REALTORS®/Florida Comprehensive riders. Use them!

There are two specific areas of potential UPL to be aware of when you are preparing contract documents and presenting them to clients: oral communications and the filling in of blanks.

Rule 10-2.1(a)(1) of the Rules Regulating The Florida Bar states, "It shall not constitute the unlicensed practice of law for a nonlawyer to engage in limited oral communications to assist a person in the completion of blanks on a legal form approved by the Supreme Court of Florida.” It further states, "Oral communications by nonlawyers are restricted to those communications reasonably necessary to elicit factual information to complete the blanks on the form and to inform the person how to file the form.”

The moral of the story here is that it is okay to help your clients fill in the blanks and to discuss the facts, but you need to leave interpretation of the terms of the contract to your clients themselves or advise them to contact a real estate attorney for further understanding or clarification.

Keep in mind that an enforceable contract is one that contains the material terms of the deal. This detail is important because if a contract (or rider) is only partially completed or contains blank fields, whether or not the contract is enforceable will depend on the missing fields and whether such fields are considered material to the deal (i.e. purchase price, closing date, or legal description). I recommend that you carefully and properly fill in all blanks on a contract, especially those blanks that do not contain a default (such as a time period to perform).

--By Andrew Fisher


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