When two parties sign on the dotted line to a contract, ordinarily the terms of the agreement have been negotiated and agreed upon. A real estate contract, however, takes the road less travelled. When buying or selling real estate, parties need only agree upon price before going under contract — all other terms of the real estate transaction can be agreed upon after signature. While this may seem like a risky undertaking, fear not. Most real estate contracts will provide for a defined period of time to hash out these outstanding items, known as, attorney review and inspection period.
The attorney review period is intended to iron out the terms of the contract itself, while the inspection period is intended to give the buyer time to inspect the property for issues and request repairs. While sometimes used interchangeably, attorney review and inspection are two very separate terms that any a buyer or seller you will want to be familiar with. Why? Because you either use it, or lose it. These contract contingencies are critical because they offer each side the chance to optimize their financial outcome, or, if necessary, a means of escape. Below we expand on the details of each.
Attorney Review. Most real estate contracts entered into are form documents with blank spaces that are filled-in to define the property and parties involved. The Attorney Review clause makes it such that the initial contract is only conditional. Its purpose is to allow for further negotiation that may be required, subsequent to signature, in order to make the standard contract used, more particular to the specific wants and/or needs of the parties. Under this clause attorneys for both the buyer and seller are given time to review the contract and make suggestions for changes to protect their clients. Certain contract terms commonly negotiated in the Attorney Review period include, real estate tax prorations to be credited to the buyer from the seller, as well as contingencies for the sale of the buyer’s current property and pending loan approval.
The timeframe in which either party will have to make the initial request for contract modifications is customarily limited to five business days from the date of signature, but that may vary. With this initial request for changes to the terms of the original contract, attorney review is triggered and the contract negotiation process can continue beyond the initial deadline. If attorney review is triggered, but the parties are unable to come to an agreement during the course of contract negotiations, either side may terminate the contract, without penalty. Conversely, if the time period lapses without either party making any such requests for amendments, the opportunity to do so is missed, and all sides are bound to the original terms of the contract.
Professional Inspection. Just as with attorney review, a designated period of time is allotted to the buyer to for a professional inspection of the property. Traditionally, the buyer will have five business days from the date of signature of the contract for completion of inspection. In this timeframe, the buyer is also expected to make any requests for repairs or replacements to items in the home that have been identified as in need of the same by the inspector. Oftentimes, it can be difficult to schedule an inspection, with additional time needed to review the inspector’s report, prior to the expiration of this deadline, so requests for an extension to the professional inspection period may need to be made. Most sellers are happy to oblige.
Request for repairs can range from the replacement of a roof to the replacement of an outlet cover. Every property is different, and every buyer/seller’s willingness to compromise on these items can be just as unpredictable. While a property may have a need for repair of replacement of certain items, the seller is not obligated to agree to the request. And if the damage or cost to repair is excessive, a buyer may not want the hassle. Each person’s of a deal breaker is different, and if one exists throughout negotiation of the inspection items, the inspection period provides the opportunity for the buyer or the seller to walk away. The request for a credit towards closing costs, can be also an alternative means for parties to meet in the middle – especially for sellers who have no interest in calling the handyman.
While most contracts are a done deal at the time of signature, the attorney review and inspection period clauses to a real estate contract offer contingencies to the parties that allow for a little extra breathing room while making this major life decision. Understanding the terms in order to make an informed decision helps to alleviate the stress even further. With the assistance of an experienced real estate attorney to help you leverage these terms to work in your favor, the initial steps taken down real estate road can be a smooth ride. If you’re ready to make or accept an offer for the purchase of real estate, contact Kathryn M. Madda, today at email@example.com or 1(312) 834-4230.