Anyone ever sign a real estate contract with a 10 day termination clause?

[pnwmom]

I'm dealing with the sale of my mother's house, using a real estate agent a relative in that town referred me to. I've been expecting an offer from someone he showed the house to, and then tonight he sent me what appeared to be a sales contract, and asked me to sign it and return it.

So I emailed him back -- don't you mean for me to review it and consider it? (It wasn't full price but in the ballpark.) I haven't heard back from him yet.

In the meantime, I read the thing and finally noticed on the very last page (page 9), in the 23rd clause, there was a "termination option." And it says that if the buyer agrees to pay me $100, then they can cancel the contract in 10 days for no reason.

Isn't this something my agent should have mentioned to me?
The property just had its first open house today. What's the value to me of tying up the property for ten days with a $100 option?

Am I missing something here?

This just seems pointless, at least from the seller's perspective. I thought agents wanted to promote bidding wars, not short-circuit them.

[TexasTowelie]

1. I remember that when I sold my father's house that there was something similar in the real estate

contract. I think that the reason for it being included is if for unforeseen reason the buyer was unable to arrange financing or something occurred such as the buyer being laid off or having other serious financial emergency, or if they found that clear title could not be established then they could escape from the contract. It would be more likely that they could escape the contract if there were a reason such as discovering an issue during the inspection or immediately after moving into the home. That is why it is important to inspect the home, note the property defects and indicate that it is sold in an "as is" condition.

Since the bid for the property is less than your asking price, you have the option of either accepting or rejecting the bid. You can also negotiate to try and close the gap between his offer and your asking price by making a counter offer.

It is very unlikely that a buyer would want to back out so it probably doesn't mean very much that the language appears in the contract, but if they did then the property would be relisted with your realtor at the original asking price. It is a headache for you, but you would receive that payment for the nuisance that was created.

[pnwmom]

7. I finally found info on line -- it's the Texas version of an inspection clause,

which this thing doesn't have. It says that the house is sold "as is," but that doesn't mean what it says in WA or other states. It means that they can renegotiate within 10 days if they don't like what they discover during that time.

[Tobin S.]

2. In Ohio they call it earnest money and it's usually $500 or $1000.

I think you will find something similar in most real estate deals. One hundred dollars seems kind of cheap, but it may be customary for your state.

[pnwmom]

6. They have earnest money, too. This is separate. It's a Texas thing,

and I discovered it's a standard part of the contract, instead of an inspection clause.

[magical thyme]

3. "earnest money" here in Maine is usually $1,000+ and is put in escrow up front

not paid "after the fact." So first I would ask the realtor if $100 was a typo.

The one advantage I can think of is you can keep showing the house and it shows that somebody likes it enough to want it, which sometimes is all some people need to get them interested (as opposed to a house that has been sitting on the market for years, unwanted).

Realtors in general aren't going to tell you to consider offers. They will try to get you to sign as quickly as possible without reading the agreement. I had one young one tell me once, "Oh, they're 'just words'" Yikes. I gave her a lecture about the meaning of those "just words" lol.

My sister's realtor sold her house the day it came on the market back in 2011. They were thrilled and very nearly signed the papers, until they noticed a typo. The realtor had knocked $100,000 off their already heavily discounted house.

[pnwmom]

8. What a typo! Thank goodness they were careful readers!

[Xithras]

13. Earnest money and termination clauses are different things.

In fact, every termination clause I've seen included a refund of the earnest money.

Earnest money is generally used to secure a house while financing is sought. It's a guarantee that you actually want the house, and are putting up money to compensate the seller if you're unable to secure financing or close the sale.

A termination clause is used to turn the fixed offer into a provisional offer while buyer inspections or conditional work takes place. It's saying, "I'll buy the house and commit earnest money if the house fits my criteria within X days."

Not all that long ago, people would have a house inspected BEFORE they put an offer in. Nowadays, "termination clauses" (also sometimes listed as "inspection contingencies&quot allow buyers to do the inspection after an offer is put in. The reasoning is simple...without these clauses, the seller is under no actual obligation to renegotiate the sale if a later inspection finds problems with the property. While the buyer can walk away, they risk losing any earnest money they placed on the home. Most sellers would rather renegotiate than put the house back on the market, but there is no requirement that they do so and countless potential buyers have been burned this way. It's a financially precarious position for a buyer to be in.

These clauses allow the buyer to make an offer while still maintaining an exit strategy or negotiation leverage if problems are found.

[NewJeffCT]

4. usually

You would hope your agent could get a larger deposit up front than $100.

[Tuesday Afternoon]

5. been a while since I have done a real estate transaction but, seems like

$100.oo is pretty cheap and 10 days is pretty long time.

iirc ... earnest money was more like $1000.oo and 3 days was the time limit.

I guess this stuff varies from agency to agency, state to state.

[pnwmom]

9. They also have $1000 earnest. This is something special to Texas, it turns out.

[mnhtnbb]

10. If you think 10 days is bad, it's now 30 days here in NC!

It's absolutely outrageous, but state law that buyers have up to 30 days to not only do
their "due diligence" (inspections, etc.), but can back out for any reason and end up
forfeiting very little money. When we sold our little rental house, the contract specified $500.
and the realtor cannot indicate the sale as pending until after the 30 days is up.
Fortunately, our buyer REALLY wanted the house, but we were on pins and needles for 30
days since we had dropped the price a lot and the house had been on the market for 6 months
without one offer--although there had been a lot of showings--it just wasn't a "family" house
and needed the right person to come along.

[pnwmom]

11. That's terrible! I wonder whose brilliant idea that was?

It turned out that in Texas the number of days and cost is negotiable, and we countered with 7 days and they accepted. 30 days is way too long to be in limbo.

[Xithras]

12. Yes, and I've exercised one too.

An offer is just that...an offer. A potential buyer can offer you anything they want, and it's up to you to decide whether or not to agree to it. Termination clauses are fairly common nowadays (I've bought and sold three homes in 10 years, and they all had them), but as the seller, you can reject it if you don't want to deal with it.

The termination clause period is typically used to perform any inspections that the buyer wants. In 2003, I made an offer on a house with a $250 termination clause. When my inspector went in two days later, he found severe tree damage to the foundation that I'd missed in my initial walkthrough and evaluation. I exercised my termination clause, got my earnest money back, and walked away. The seller made an attempt to lower the price to cover the cost of the repair, and even offered to have it repaired themselves, but that just wasn't a problem I was interested in dealing with on my timeline.

If you have a problem with it, reject it. Or better yet, send a counteroffer that omits the clause, or increases the money they'll pay. The potential buyer will then have to decide how important that termination clause is to them.

[pnwmom]

14. In the states where I have purchased real estate there are inspection clauses, but no termination-for-any-reason

options, though I'm sure some people use inspection clauses in that way.

Once I realized this very last item on the 9 page contract was standard Texas boilerplate I felt better. If it had been unique to that contract, I would have thought the buyer wasn't very serious about the offer.

I did ask for a reduction from 10 days to 7 and the buyer agreed.

[Xithras]

15. The thing with inspection contingencies...

...is that they open up a can of worms about what constitutes an "inspection". Does it only cover problems found by professional inspectors? What if you're simply taking a second look at the property and realize that its fence is functional, but only has a year left, and you don't want to face that expense only a year after buying the home?

The debates over what qualify as "contingencies" when an inspection contingency is activated led to them simply being used as cancellation clauses.

Shortening it to 7 days was a good move. When my sister sold my dads California house a few years ago, we got a great offer from someone who wanted a 14 day "any reason" contingency. Her agent countered with a shorter "flaws only" contingency, which the buyer accepted.

[hamsterjill]

16. Is there no earnest money in addition to the $100 amount?

Typically, $100 is used as "independent consideration" which in essence is paid to you for keeping the house off the market for the ten days for inspection.

It is normally used in commercial contracts, and it is usually in addition to a larger amount that constitutes earnest money. The $100 independent consideration is not refundable to the proposed Buyer if they decide not to buy the house, but earnest money typically is refundable.

Your agent should definitely have gone over the contract with you and made you aware of this clause. You did the right thing by actually taking the time to READ the contract. So many people don't, and then wonder why they get themselves into messes!

[pnwmom]

17. Yes, there was $1000 earnest, which seemed low to me too. But this is a small town in Texas,

so home values aren't comparable either.

I was surprised that the agent (picked out by a relative in the town) didn't make any effort to go over the contract with me. He just emailed it and asked me to sign and return! I told him I needed to talk to him and go over the whole thing first.

There was a significant omission concerning an exception to the listing agreement. It wasn't his fault -- I had given him the (then potential) buyer's name and it turned out the person was DBA an LLC. I caught the error, and he said it wouldn't have been a problem. I trust him but not the lawyers who work for his national real estate firm -- so I wanted the correction in writing.

Afterwards I told my son to always read these things carefully. They look scary, but anybody who graduated from college should be able to understand a contract, ask questions about things that aren't clear, and catch mistakes.

[trof]

19. $1000 is kind of standard, but you can request more.

[trof]

18. I'm a former realtor and this sounds highly unprofessional to me.

A realtor should ALWAYS present an offer in person and explain it if at all possible.
YOU are paying the commission and the realtor should be working for YOU and NOT the buyer.

Unless it's for full asking price, NEVER accept the first offer.
Make a higher counter offer.
There should be some dickering back in forth.
The realtor is required to present offers and counter offers.

A buyer can put any contingencies he wants to in the offering contract.
Some are fairly standard like being able to obtain financing, etc.
Others can be more 'unusual'.

It's up to you whether to accept or reject them.
Usually you just cross them out in the offering contract and initial the crossout.

I'd be very careful with this realtor.
Doesn't sound like he has your best interests at heart.
Just my 2 cents.

[pnwmom]

20. Thanks, trof.

This was good advice, but I'm stuck with the guy now. Unfortunately, I'm far away from Texas so my contact is limited to emails and cell phone calls with a poor connection.

The good part is the winning bidder is a friend of one of my relatives, so I trust that person even if I'm not impressed with the broker.