1:43 Minute Read.
There is one paragraph on our purchase agreement that agents never ask about until they’re faced with paying thousands of dollars out of their own pocket in lost commissions.
The West Michigan Regional Purchase Agreement is a very well written document. Like all legal documents, there is a reason for everything included in it. And, like all legal documents, it cannot completely cover every possible scenario. That’s where agent knowledge and experience must kick in.
The subject I’m referring to is Outstanding Assessments (It’s paragraph 12 on our latest 2019 Purchase Agreement.) Honestly, many problems occur with purchase agreements because agents simply don’t read, understand or apply the actual text. So, lets take a look at the wording, apply the data and consider the impact of not understanding these concepts.
“To fix the problem, the agent
would pay $5,900 out of her commission”
ASSESSMENTS (paragraph 12 of the Purchase Agreement)
Most agents check the first box, so we’ll just consider that choice. (In fact, I can’t remember ever seeing a PA with the second paragraph checked.)
Here is the actual text: “12) If the Property is subject to any assessments, Seller shall pay the entire balance of any such assessments that are due and payable on or before the day of closing (regardless of any installment arrangements), except for any fees that are required to connect to public utilities.”
Ready for a true story?
Ms. Agent explained each line to her client as she completed the offer on a property. As she approached paragraph 12 she explained, “This means that any and all assessments that are due for your property will be paid for before you take ownership.” Actually, it doesn’t say that, but let me continue the story.
On the day of closing, buyer called to transfer the utilities and learned there was a $5,900.00 utility hook-up fee that needed to be paid. Guess what the buyer did next? He called his agent.
And that’s the wrong time to start reading the actual text of the purchase agreement to try to understand it.
Clearly, there is an exclusion for utility hook-up fees in the assessment paragraph. Why? I have no idea. I’m sure someone has an intelligent reason for the exclusion. I just don’t know what it is.
Fortunately, the fast thinking agent contacted the title company and listing agent before the seller finished signing their side. They all agreed on the outstanding amount and the seller paid it. Whew! But, what if the seller refused to pay? Well, if someone didn’t pony up and agree to pay that amount, it may be a question for a court to decide. And no one wants to let it get that far.
I’ve seen trouble with this issue a few times in my career. It doesn’t happen often, but when it does it can be rather expensive to fix. So, here are two things every agent can start doing today to prevent this from happening to them.
1. Know every word of your contract. Take the time to read and understand what you’re asking of your clients. And then, explain accurately what each paragraph means.
2. Contact utilities early in the closing process to determine any outstanding amounts.
While it doesn’t happen often, it’s still worth taking the time to find out. Or, as the saying goes, “An once of prevention is always worth a pound of cure.”
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