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Real Estate investors need to know as much about writing contracts as they know about real estate.   This series of posts is a continuation from the Negotiating Real Estate Contracts article.  In Part 1, we will discuss 5 clauses that are commonly used by investors in real estate purchase contracts.

1. The Acceptance Clause

This clause is used to by the submitter to tell the receiver how long they have to accept the offer.   In most cases, a buyer will want to make the seller decides quickly and the seller wants the buyer to decide quickly.  Be sure to include time to shop for other offers or to accept counter offers.  This clause can be most important when there is competition.  An example of this clause is as follows:

“Seller shall have until September 20, 2008 at 12 o’clock pm to accept this contract.”

2. The Approval Clause

This clause is commonly used by the purchaser.  It allows the party to submit a contract contingent upon the approval of a third party.  The third party can be a spouse, business partner, etc.  This clause allows an escape route if the buyer later decides that he/she is no longer interested in the deal. 

3. The Arbitration Clause

Law suits can be expensive and time consuming.  The arbitration clause simply says that any disputes will be resolved through binding arbitration.  The only way a law suit can be filed is to enforce the arbitrator’s ruling.

4. The Assignment Clause

Ah yes the infamous assignment clause.  Those of you who are wholesalers or interested in becoming one, this is the clause for you.  Although some prefer to create an entirely separate contract for assignment, this clause should still be used in the purchase contract.  It simply provides whether or not the contract can be assigned to a third party.

e.g. “Buyer may assign this contract and all rights and obligations to another party or entity including, persons, corporations or trustees.”

5. The Closing Date Clause

The closing date clause is another one of extreme importance to aspiring wholesalers.   As the buyer, you will want ample time to find an investor/buyer to flip the property.  The closing date is also referred to as settlement or escrow, depending upon the area of the country.  This date is also important if the buyer requires more time to find funding for the project.  Commercial property usually requires a longer time frame for settlement because of the complexities involved in financing them.

Be sure to consult a real estate lawyer before submitting any contract and do not use the examples on this site as law.  Clauses can be written in any number of ways and a lawyer will know what’s best for your situation.