Real Estate Clauses: What to know
SELLER Beware: Real Estate Clauses
I was recently reading a book about the business of flipping homes. Throughout my Real Estate Investing career, I have made it a priority to continue to learn the best practices of an investor, not only for my business but for sellers that are looking for a cash buyer. As someone who wants to buy every house that someone contacts me on, I have at times looked a seller in the eyes and said, “Based on what your goals are for selling this house I don’t think we are the right fit for you.” The look in a seller’s eyes is often surprise, as if they are shocked someone would tell them the honest truth. That’s why I was so surprised when I read a section in the book called “Weasel Clauses”.
The book says, “As a buyer you’ll want at least one contingency or “weasel” clause. Something that reads to the affect “This is subject to inspection and approval of the property by the buyer in writing prior to “date”. The agreement is subject to attorney approval within seventy-two (72) hours.”
What does that even mean?!
So, what’s the big deal if you are selling your home to an investor that has a “weasel clause” in the contract? The problem for you as the seller is that the investor can get out of the contract with no real reason, leaving you to find a new buyer and start the process all over again. Imagine the problems that will create if you are expecting to close on the property ASAP but the investor calls the day before closing and says your deal was not “approved”?
If you are working with an investor who uses or needs a “weasel clause”, they are exactly that, A WEASEL. If they can’t protect themselves inside of the due diligence period that almost ALL real estate purchase contracts have, find someone else to work with. Rookie investors can cost you time and money.
What can you do to avoid unexpected clauses?
Read the purchase contract carefully and ask the potential investor how many deals his company has backed out of after signing a purchase contract. If they are honest this will give you an idea of what to expect. The past often determines the future. Work with someone that you feel comfortable with and who isn’t just giving you the best price. Oftentimes, it is the investor that gives you the best price that tries to negotiate on the price after you have signed the purchase contract. The more questions you ask your potential buyer (investor), the better off you will be.