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Top 8 Closing Pitfalls and How to Avoid Them

Friday, August 10th, 2018 at 7:54pm Engel & Völkers Naples

1. Fixtures, Non-Real Property and Personal Property Items.

All the fixtures and non-real property items identified on Lines 3-7 of the Sales Contract and all the personal property items identified on Lines 10-12 of the Sales Contract that exist and are located on the Property of the Effective Paragraph 2 on Lines 43-45 as the last date either the Seller or Buyer signs or initials the Sales Contract) are included in the purchase price and sale and conveyance of the Property unless any of said items are expressly excluded. Listing agents should review and discuss all those items with Seller prior to listing the Property (but in no event later than Seller entering into a binding Sales Contract) and exclude those items which the Seller plans to remove prior to closing. Items that are not included need not be excluded. Failure to engage in that exercise could result in the listing agent having to replace or otherwise compensate the Buyer or Seller for the items that are included in the Sales Contract terms but were removed from the Property by the Seller prior to closing. Note: There are exclusion lines provided for each category of items. Likewise, a selling agent should be certain include any of such items desired by the Buyer which are not expressly included in the Sales Contract.

2. Parking Spaces, Cabanas and Storage Lockers.

The assigned or deeded parking spaces, cabanas, storage lockers and other common elements (typically in a condominium) which Seller is to convey with the Property should be identified on Lines 23-24 of the Sales Contract. Desirable locations relative to the Property, especially parking spaces, may be very important or beneficial to a Buyer; therefore, careful attention should be paid by a selling agent to property legal identification of the spaces deemed desirable to the Buyer who physically viewed their location during viewing the Property. A selling agent should confirm with the Condominium Association and/ or Warranty Deed that the space(s) identified are in fact those which are assigned to the unit being purchased, and identify the actual assigned number(s) or letter(s) of those spaces; i.e. “18” and “19”, rather than simply inserting the numeral “1” or “2” indicating how many spaces are being assigned. Hint: The # sign in front of the blank spaces was added to remind agents of that fact). If a selling agent merely inserts “one” or “two” spaces (or worse, “1” or “2” which are not the correct space numbers) rather than “18” and “19”, and the listing agent erroneously showed the Buyer the wrong spaces and the correct ones are less desirable, the Buyer may be stuck with the less desirable spaces because the one(s) Buyer wanted are not properly identified.

3. Standard D.1. General and Other Disclosures on Lines 162-212 of the Sales Contract.

By signing the Sales Contract, the Seller is representing that Seller knows of no facts or conditions materially affecting the value of the Property, except those which are readily observable to Buyer, or which have been disclosed to and acknowledged by Buyer prior to buyers execution of any offer (or counter-offer, as applicable), and is making further representations about Seller’s lack of knowledge with respect to specific property conditions such as wetlands, lead-based paint, past insurance claims on the Property which would increase cost or restrict availability of insurance coverage, and unpermitted permits and code violations. Sellers often don’t read the Sales Contract and therefore don’t realize their making said representations; i.e. A Seller may have known that his insurance costs and deductible skyrocketed after filing a second insurance claim on the Property for water damage, but may not be aware that said information should be disclosed under the Seller’s Disclosure Statement or sales contract facing a claim of misrepresentation or omission of fact when the Buyer receives a quote for coverage which far exceeds Buyer’s expectation. Listing agents are encouraged to review and discuss each of the relevant provisions in Standard D.1 to determine whether any necessary or prudent  disclosures should be made. Example: Seller's knowledge that the first floor of his stilt home was enclosed without a permit and in violation of local building codes would contradict Seller’s representation in Standard D.1.i. that Seller knows of no unpermitted improvements.

4. Timing Really Is Everything— Homeowners’ Association Disclosure Summary and Seller’s Disclosure Statement.

The timing for the Seller to provide both the Homeowners’ Association Disclosure Summary (“HOA Disclosure”) pursuant to Standard H of the Sales Contract and Sec. 720.401, Florida Statutes, and the Seller’s Disclosure Statement (“Seller’s Disclosure”) is important. If the HOA Disclosure has not been provided to the Buyer prior to execution of a binding contract, the Buyer is entitled to void (terminate) the Sales Contract within 3 business days (or prior to closing, whichever occurs first) after receipt of the summary. The purpose of this provision is to ensure the Buyer has the benefit of the information relative to mandatory assessments, etc. prior to Buyer being bound by the Sales Contract terms. By providing the HOA Disclosure to the Buyer (and obtaining the Buyer’s signature and date prior to or at time of execution of the Sales Contract removes the Buyer’s 3-day right to terminate for any or no reason. The danger in not timely providing the HOA Disclosure is that the listing agent will move onto the next transaction with the best intention of providing the HOA Disclosure once the Sales Contract is signed but forgets to do so or does so belatedly, has granted a Buyer who is having remorse at the price paid for the property, who suffers a family tragedy, or discovers that Buyers's first choice Property is back on the market with a lawful way out of the Sales Contract and return of the deposit funds…not to mention a very unhappy Seller. The Seller’s Disclosure is another time-sensitive document. As stated in bold capitalized letters at the top of that document, “NOTICE TO BUYER: ANY DEFECTIVE INSPECTION ITEMS CONTAINED IN THIS SELLER’S DISCLOSURE STATEMENT SIGNED BY BUYER PRIOR TO BUYER’S EXECUTION OF ANY OFFER (OR COUNTER-OFFER, AS APPLICABLE) SHALL NOT BE DEEMED DEFECTIVE INSPECTION ITEMS UNDER STANDARD D.2.b. OF THE SALES CONTRACT.” Example: If Seller discloses in the Seller’s Disclosure that a security system which has never been used by Seller is or may be in working condition, and the Buyer signs the Seller’s Disclosure prior to or at time of execution of a Sales Contract (thereby having the benefit of that information and whose purchase price offer will reflect same), Buyer has no recourse Remedial Action or credit from the Seller's disclosure is not provided  and signed by the Buyer until after the Sales Contract is signed, the Seller will arguably be required to conduct Remedial Action on the security system or credit Buyer in lieu thereof in order to keep the Buyer in contract, if said action is timely elected by the Buyer. Provision of these disclosure documents and securing Buyer’s acknowledgment of same is not a housekeeping matter; it’s an important function to minimize Seller’s obligation to address conditions which were known to Buyer at time of contract…listing agents should not treat them as such.

5. AS-IS Sales Contract/AS-IS Addendum to Contract.

Use of the AS-IS version of the Contract or AS-IS Addendum to Sales Contract, does not trump (lower case, not Mr. President) the Seller’s on-going obligation to maintain the Property in the condition it existed as of the Effective Date until closing. This is one of the most misunderstood documents in the NABOR® library. This version of the Contract works as follows: The Seller is selling the Property in the condition it exists on the effective Date of the Sales Contract, and the Buyer has a period of time (typically 15 days) to perform all desired inspections, testing and evaluations to determine whether the Property is suitable, and to terminate the Sales contract if the Buyer is not satisfied with the condition of the property as of the Effective Date. Example: Buyer learns during due diligence period that the roof is leaking and the AC system #2 is not properly cooling, so Buyer and Seller agree to a $10,000.00 credit at closing for those items as a condition of Buyer moving forward. During the walk-through, Buyer discovers that the water heater and child proof safety fence that were both working at time of inspection are no longer in Working Condition. The Seller is obligated to conduct Remedial Action or credit in lieu thereof with respect to those items, despite the AS-IS nature of the Sales Contract, under the provisions of Standard D.2.a. on Lines 223-225 of the AS-IS Sales Contract stating that “Seller shall maintain the Property, including without limitation the lawn, shrubbery, and landscaping and the Personal Property, in the condition existing on the Effective Date, or date of possession whichever is earlier, except for ordinary wear and tear.” And Standard D.2.b (3) on Lines 230-231 of the Sales Contract states that one of the purposes of the Buyers's walk-through is to confirm that Seller has so maintained the Property until closing.

6. The Good Faith Clause.

Standard R(1) on Line 441 of the Sales Contract states in bold print that “The parties have agreed to deal in good faith with respect to all provisions of this Contract.” When the actions or inactions of Seller or Buyer run counter to this provision, agent should call attention to this provision and caution them against bad faith actions or inactions that could place them under threat of breach of their contractual good faith obligation under the Sales Contract. Examples of potentially bad faith actions: Buyer obtains a clear to close his loan but fails or refuses to sign the financing contingency waiver; Buyer fails to apply for membership in the condominium association until a week prior to closing and due to Buyer’s remorse attempting to terminate the Sales Contract because approval wasn’t given within 5 days prior to closing (refer to Paragraph 8).

7. Membership Approval.

A little used but important clause in the Sales Contract (with potentially dire consequences) is included on Lines 378 through 381 of Standard J of the Sales Contract states that “If membership approval is required, Buyer shall not later than 10 days after Effective Date, make application for same in the name(s) in which title will be taken, and shall comply with all governing requirements of the association and be responsible for securing membership approval. If no approval has been obtained prior to closing, either BUYER or SELLER may terminate this Contract.” Agents are encouraged to counsel the Buyer on the application process, how to obtain the application, pay the fee and diligently pursue the approval.

8. Not Reading and Becoming Familiar with the Sales Contract Documents.

Enough said. 




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