Staying in Control: 3 Timeless Tips for Contract Negotiations

Standard real estate contracts are usually adequate for most single-family residential sales, but they don’t address multifamily deals, which often require more due diligence and are more complex to close. What’s in a standard contract is simply not comprehensive enough to cover your multifamily investment deal, so you’ll need to ensure the following terms are incorporated into your contract.

Go with days, not dates

Investors often use dates to define milestones, such as when the closing is scheduled or when due diligence expires. However, what if an event happens that causes you or another party involved to miss one of those dates? For example, maybe your lender is taking longer than the 45 days you expected to approved your financing. Perhaps you need a local permit, and the local government is dragging its heels and pushing your closing date.

If you don’t cover yourself for these types of unforeseen problems, you’ll find yourself in default of the contract, which means you’re not in control of the transaction and have to depend on the other side to get you back into it. To avoid this, use the number of days after a defined event occurs instead of a date. For example, the closing date could be set as five days after all contingencies have been removed as opposed to a specific month and day. You can add a section that states it can be earlier if both parties agree to keep the seller happy.

Define your due diligence period properly

One common mistake investors make when defining their contract due diligence period is setting it by the number of days from when the contract is signed. If you set it as 14 days from the contract signing but the seller is dragging their feet or not giving you complete information, it’s a problem. The same is true if you receive all the information but with just two days left on your due diligence period, which doesn’t leave enough time for review.

Set the period as a specific number of days after you receive all documentation. This way, you’ll have the time you need to review it properly.

Add a contract extension

Even when things that are out of your control are happening, you still want to stay in control of your transaction. If you’re in a timed closing situation – such as 45 days – add a 30-day contract extension clause in case something holds the deal up. You’ll have to put something up for it, such as additional 0.25 percent of the sale price into escrow, but it can save the deal if something unexpected pops up, such as a lender who is slow at approval.

Your contract should keep you in the transaction’s driver’s seat even when something unexpected happens. Ensure that yours does this by having it cover all the bases possible.

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