Contract Clauses

Mike: Welcome back to the flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Larry: Hey, this is Larry Goins, today’s host of REI Classroom. Thanks a lot for watching. Thanks a lot for checking out all of my other REI Classroom trainings as well. Today, I want to talk about contracts.

Mike: This show was sponsored by passiverental.com.

Larry: People are scared of contracts, especially new investors. There’s nothing to be scared about. Now, a lot of people ask me, “Larry, what kind of contract do you use when you’re buying a house from an individual,” or from a realtor, or through a realtor listed only on the MLS? Me, I like to use that exact same contract form when I’m dealing with a for-sale-by-owner that I use when I’m dealing through a realtor on an MLS property.

Now, why do I like to do that? Let me tell you the number one main reason. The first thing is a lot of for-sale-by-owners, they’re scared of contracts as well. They’re scared of signing it. They’re scared that they’re doing something wrong. They don’t know all the clauses in it. So a lot of for-sale-by-owners would say, “Let me have my attorney check this out.”

Now, if you have created your own contract. I don’t care if it’s even on one page or two or three, whatever, if you have your own contract, it’s going to be pro-buyer and not pro-seller. It’s going to be pro-buyer. So if you have your own contract and they take it to an attorney to look at, the attorney might have a lot of questions about it or might say, “No, you don’t need to sign this. This is way . . . you don’t want to do this at all.”

However, if I’m using the exact same contract that every realtor in the state of . . . whatever state the property is in, I can convey that to my seller and make them more at ease. For example, if I’m in Georgia, I might say . . . if they say, “I want my attorney to take a look at this,” I’m going to say, “You know, you’re welcome to do that. However, this is the exact same form that every realtor in the State of Georgia uses. So unless your attorney is going to advise you on how much you should take for the property, there’s really no reason to do that.”

Now, if they do still go ahead and have their attorney look at it, now remember you’re making cash offers anyway, right? And you’re making cash offers so the attorney might come back. The only thing in the world they can say is, “You don’t need to sell your house for this cheap.”

So if a seller, and it’s very rare it happens, but if it does, if the seller comes back and says, “You don’t need to sell your house for this cheap,” or that’s what they told me that the attorney said, I’ll simply ask the seller, “Well, how much did the attorney offer you for the house?” And that typically ends the conversation right there.

So that’s just one thing. Now, a couple of things, you need to have good clauses for whether it’s addendums or clauses or whatever. You need to have . . . There’s one for holdover tenants. There are some for seller financing, for environmental issues, for zoning issues, commercial, residential, even if you’re getting seller financing, you need what’s called a substitution or collateral clause. And I typically have a couple of clauses. Every contract has, “subject to inspection.” So you don’t really need to put that in there, but make sure you get at least a 15-day inspection period.

And you also want to add in there, “Subject to an appraisal acceptable to buyer.” I’ve never had an attorney or realtor say, “What does this mean, ‘acceptable to buyer'”? And one that we used to put in, we don’t typically have to do this anymore, especially with the banks, is “In the event of buyer’s default, the deposit is the sole remedy.”

So I’m Larry Goins. I hope you enjoyed this REI Classroom on contracts and addendum and be sure and check out all of my other REI Classroom videos as well. And you can reach me and find more free training and free books at larrygoins.com. Thanks a lot.

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