Act first. Think later. Unfortunately, it happens all too often in real estate.

Frequently, buyers and sellers agree to buy or sell a home without thinking through the legal or financial consequences of such an action. When they stop to engage their brains, they realize they’ve done something they’ll regret later.

To protect themselves, buyers and sellers will often stick contingencies into their purchase and sale agreements that allows their attorney the right to review and approve their contract. Another popular contingency gives buyers the right to have the property inspected and approve the home inspector’s report. Many buyers and sellers believe these clauses will protect them in case they something turns up or they decide, in a pang of buyer’s or seller’s remorse, that they’ve made the wrong move.

  • Attorney Approval Riders.

If you’re counting on an attorney approval rider to protect you, you should make sure you know what it says. The attorney approval language on pre-printed contracts differs from contract to contract, and may not say exactly what you think it does — or should.

Some commonly used contract forms are drafted by real estate brokerage associations and they have a vested interest in keeping deals together. Once the brokers have made a deal, they don’t want anyone to undo the deal. So your “attorney approval” rider may give your attorney the absolute right to review and approve the contract, or it may allow your attorney to approve the form but not the business terms. Another so-called “attorney approval” contingency may allow the attorney to make modifications to the contract but not approve it or reject it.

If you can’t discuss your purchase or sale with your attorney before you make your offer, be sure that the attorney approval rider says what you want it to say. Make sure your attorney has the absolute right to review and approve the contract. If the pre-printed form contract you’re using has different language, cross it out and insert your own.

You should also realize that you don’t have a deal until the approval period for your contingencies has ended. If, for example, the seller’s attorney has five business days to review and approve the contract, you can’t be sure you’ve really got a deal until those five days are up.

In states like California and Indiana, where attorneys aren’t commonly used to close house deals, make sure you thoroughly read and understand the contract before you sign it. In states which sanction buyer brokerage, a broker who is not an attorney may give you his or her interpretation of the contact. In other states, real estate agents who are not attorneys are not permitted to give you legal advice.

  • Inspection Contingencies

Home buyers often think of their inspection contingency as a safeguard that will protect them in case an unexpected problem turns up in the home they hope to purchase.

But your inspection contingency may not be written in such a way as to give you an absolute out if the inspection should turn up a worrisome or costly problem. Like the attorney approval rider, inspection contingencies are worded differently from contract to contract, depending on whose form you’re using.

For example, the inspection contingency in some form contracts will permit you to inspect the home within five days and pull out of the deal if you do not “approve” the inspector’s report. Other contracts give you the right to inspect the property, but if the repairs needed cost less than a certain amount, you must take the home subject to the repairs being made. In other words, you can’t necessarily back out of your deal simply because a few panes of glass need to be replaced.

That could be a problem if your inspection turns up very old mechanicals or appliances which, though fine now, will probably need to be replaced within a short period of time. If the inspector tells you you’ll have to make $5,000 worth of repairs within the first year, and you don’t have the cash, you’ll be stuck unless your inspection contingency gives you that out.

Make sure your inspection contingency allows you the right to both inspect the property and approve the inspector’s written report. Finally, consult with a real estate attorney who can guide you on your local real estate laws and customs.


On another note, home buyers, sellers, and owners who are “wired” (that is, you’re connected to the Internet) may want to take advantage of the information and resources offered at the following web sites:

  • Department of Housing and Urban Development (HUD) http://www.hud.gov

  • Veteran’s Administration (VA) http://www.va.gov

  • Environmental Protection Agency (EPA) http://www.epa.gov

  • Federal National Mortgage Association (Fannie Mae) http://www.fanniemae.com

  • Freddie Mac http:///www.freddiemac.com

April 29, 1996.