Would you agree to this seller's addendum?

Question

My husband and I tried to purchase a 2/1 SFH earlier this week from a flipper. It is in move-in condition, could be put on the rental market the moment we close, ties up very little of our funds, and fits our performance parameters. A no-brainer. We put in a full-price offer, with only financing and inspection contingencies. The financing contingency was included only because I wasn't sure our lender would write a mortgage that small. We offered $5k EMD for a house that lists for $54,900 to show that we're serious.

The seller responded with the attached nine-page Addendum. I'm interested in what the BP community thinks of this addendum. I'm not an attorney, but it seemed really problematic to me.

What problems and or concerns do you have with this?

https://www.biggerpockets.com/files/user/Katherine...

The seller responded with the attached nine-page Addendum.  I'm interested in what the BP community thinks of this addendum.  I'm not an attorney, but it seemed really problematic to me.

What problems and or concerns do you have with this?

https://www.biggerpockets.com/files/user/Katherine...

Keith Thompson · Answer

@Katherine S. - so... Walking away from the deal because of the addendum... I get it, that would have been my first response too, and it was as I read through the pages. After only a couple of paragraphs, I saw the one-sided nature of the document and had the exact same reaction, as reflected by @Ned Carey.  Then I checked my ire, took a breath and actually said to myself, what if this were my deal, what would I do... maybe that's why I actually read the rest of the addendum.

LIFE LESSON (for me, you're welcome too)... There's a class I took about 15 or so years ago - literally the most impactful class I ever took - no kidding.  High school, College, Professional Development, RE Investing, etc... - no class in any of these categories nor any other class I have taken holds candle to this one.  Almost instantly after finishing the course and literally, ever since, I began applying and continue to apply lessons from that class to business and home life alike.  The class was called "Crucial Conversations" and it changed my life, the way I look at conflict and my response to it... for the most part... I still have my moments, but they are much fewer and farther between.  I use the techniques in buying, selling and remodeling negotiations.  I use them at home, in the parking lot - heck, pretty much everywhere.

Basically, the nut is, in hard conversations and situations, the type that generally have the potential for high emotion and high impact, when the conversation gets difficult, it's often easier to just let emotions govern and cut to the bottom line - "Frak-Off"!  It's the Easy Response, and the TYPICAL ONE.  But, what does that response accomplish?  Does that move the ball forward in YOUR favor?  Does that approach help ME/YOU reach your goal?  As I read the document, FrO was my first instinct.  But that would not have helped close the deal.

As I indicated, I looked at this question as though I was facing the problem myself - FrO would not have moved the ball forward in MY favor, so I persisted in reading and assessing.  This may have bee a salvageable deal, addendum and all.  Yes, it's one sided, and extremely so.  I get their intent, save their bacon, toss yours in the fire, get an angle etc.

What I presented were SOME options in response to the addendum that Might have allowed you all to get to -YES.  There are many variations and options that could have changed the mind of the seller, while still preserving the buyers goals.

Aaagh - too many words... There may have been a way, but it can't happen when one or both of you walk away from the table.  Sometimes a different approach to the difficult conversation is exactly what's needed, an learned approach.  Though, sometimes walking away exactly right too.

Keith Thompson · Answer

@Katherine S.

I'm no attorney, if you have legal concerns over the addendum, you should consult a lawyer.

Here's my quick layman's take as If I were faced with the situation...

The document looks kludged together; a  whole bunch of neat concepts gathered from multiple sources covering many things that could have and should have been covered in the main contract.  I think that only the Lead Paint warrants separate addendum, which would be a release.

Para:

A - no problem (NP), remains on the market until contract is ratified

B - NP, lays out dollars and dates

C - NP, though oddly worded, the concept should have been applied to the entire contract vs just A

D - NP, buyer cannot assign, forfeits deposit

E - NP, ...AS IS, buyer beware...

F - I'd strike all of this and refer to the contract itself for performance dates and remedies.

G - I hate "without limitation" language.  I'd strike that and limit your exposure to only those stated potential expenses and then limit that with a "Not To Exceed... $X".

H - I'd strike this and put inspection dates and expectations in E.

I - Seller can bail for any reason and simply return the deposit... just realize that any inspection or financing expenses are sunk and gone if the seller bails. Be prepared to move quickly.

J - NP, any needed repairs are on you.

K - I'd strike everything after the first sentence.  The Deposit becomes the Liquidated damages - period.  If the seller wants to be able to go after the buyer for legal fees, the same should be available to the buyer.  Indemnification?  That's a big word, with big implications, strike all of that.

L - NP, commission demands on the seller.  I'd put NA in the other blanks (this applies throughout the document).

M - Hmmm, release from all possible liens - looks like, of any type post closing.  I think I'd strike that one as it can obligate you to unknown obligations of unknown costs.  Alternatively, seller will correct any discovered liens within x period (use mechanics lien period).  Seller won't go for it, but... see if they will indemnify buyer from post-settlement lien costs and obligations (sharp stick comment below will shed light on this one.)

N - NP, title agent, I'd put a line in there and ask them to declare this up front in order to give you the opportunity to object in case you want to.

O - NP, seller's insurance

P - I'd modify by adding , (iii) Or other remedy as may be agreed by Buyer and Seller in separate addendum. And, I'd strike the balance of that para.

Q - NP, Lead warnings

R - Aargh, penalties for delayed closing... I get it, but as a Buyer, I'd strike this, as a Seller, I'd want it. Hmm, is the Selling Broker a party to the contract? Part of the clause impacts their commission, which means they might have to agree to this Addendum as well.

S - I'd modify this to exempt incidental (damage?) that might occur in the course of inspections.

T - NP, though it's redundant, already covered under (I).

U - NP

V - Again... Indemnify... Strike this one as it applies harmless and indemnifications to all paragraphs except B, G, L, O, R & S. Unknown impact with unknown limitation.  You could limit the Buyer obligations under this paragraph to $100 within 48hrs after closing, and leave it intact.

When I see language such as this, I tend to sharpen a stick and poke at it.

Personally, I'd probably scrap the contract approach entirely because of the addendum, see if you can get by with a letter of intent that specifies purchase price, closing expectations and includes access for inspections.  Then I'd organize the financing and inspections, chop, chop or skip both, adjust my price and present a one or two page contract offer.

I can't believe I read that whole thing... well, I skimmed through some of it...

Lynn McGeein · Answer

Sometimes the hardest part of my business is convincing client to simply counter back with what they want instead of reacting to objectionable terms by walking away. Resubmit your initial offer, explain verbally or in writing protections already built in to standard contract and that you won't sign anything with too much added legalese but if there are specific issues they need to address then you'll listen to their reasoning and try to come up with a solution that works for both of you without having to pay for review from attorney before signing.

Ned Carey · Answer

@Katherine S.   I would be skeptical, Not because of what it says about the deal but what is says about the seller. It seems to me to be quite Hokey and poorly worded.

By and large there is nothing special about it or to be concerned with except the paragraph about the seller can nullify the contract. It does seem to be slanted well to the seller's  side. (Please consult an attorney regarding the specific risks and advantages to you)

What form did you use to submit your offer. If you used a board of realtors contract or something similar the seller should be fine with that. If he or she wanted you to use their contract for the offer, why not do that instead of having an addendum that essentially is a contract in itself.

You say the seller is a "Flipper." Does he or she have title to the property or are they 'wholesaling it" The language makes me think it is someone trying to wholesale it but they don't have it under a solid contract themselves.

Jay Orlauski · Answer

@Katherine S. - it seems like you have plenty of advice here.... I tend to agree with you when you say

The biggest stickler for DH was the idea that the seller could bail at any point for any reason.

I agree... that stood out to me.  Also .. they are putting all the restrictions on you  and ZERO on themselves .. this is a one way contract that doesn't really look our for any of your best interests  - only the sellers. If this was an all cash offer - then MAYBE - but you are unsure if your lender will do the loan and so unless you already have some other investors with some financing lined up  - this leaves you very exposed.  This is a really narcissistic contract ...  you could always respond with a counter offer that brings your deposit to $1000 and removes his escape clause - he prolly wont accept it - but you never know .. he could just be throwing out his best case scenario to see how you respond and may be willing acquiesce on several of the clauses.  I cannot advise you as I am not an attorney or contract lawyer - but from what I read in the contract - I personally would not sign it without countering out some of those clauses.

Best of luck to you on securing your next deal.

oh .. P.S. - them asking you to pay for all commissions? please. And the big thing ... the fact that if it didn't appraise at that price you would still be responsible to following through and have no recourse or refund of your deposit? that right there made my blood boil... these guys are a real piece if you know what I mean...

Katherine S. · Answer

@Keith Thompson

Your comment about critical conversations reminded me of something I learned in therapy.  My therapist asked me, "Do you want to be right, or do you want to be effective?"  Of course I am always right and need everyone to know it, which makes me ineffective.  It's a daily struggle, but a bit easier to address now that I am aware that I'm doing it.  Thanks for the reminder!

Katherine S. · Answer

@Keith Thompson @Matthew Anderson @Lynn M.  @Ned Carey

Thanks everyone for your responses.  I was initially hesitant to post this question, as I had a sneaking suspicion that I was indulging my sense of righteous indignation more than anything else, which I now see is probably true, especially after I wrote "...we have the potential to buy more houses from them..."

DH and I have had a discussion and decided to see if we could salvage this deal.  I looked at the company's website and it's all about "commitment to honesty and integrity," so perhaps we're dealing with a stubborn real estate agent unwilling to go back to his client to discuss different terms.  Or maybe it's just marketing hype.  But it's worth a second attempt.

However, I will definitely have an attorney review anything that isn't the standard purchase agreement.

Katherine S. · Answer

@Ned Carey We had the same reaction...that the addendum said more about the seller than it did about the deal.  The company bought this property last year for about $18k which was a foreclosure; I always check out the background information about a property before we make an offer.  (It's amazing the amount of really important information that is available on line for free!)  They did a nice job of the reno, which is why we wanted to buy it for our rental portfolio.

We used the standard realtors purchase agreement, with nothing fancy in the terms.  Should have been a straight forward, no drama kind of deal.  I'm not sure how they think this way of treating customers is good for their business.  We have the potential to purchase more houses from them if they fit our parameters, but nertz to that.

Katherine S. · Answer

@Keith Thompson Wow, I can't believe you wrote such a long and detailed response!

We walked, period.  The biggest stickler for DH was the idea that the seller could bail at any point for any reason.  I was ticked about so many things...but the idea that they could bail if the financing took longer than anticipated and then keep our EMD!  In the past couple years, we've had trouble getting the paperwork through the financing process for absolutely no fault of ours, (one lender kept blaming that guy, Frank Dodd, whoever he is! ;) ).  We got an opinion from a local RE attorney who said he'd never seen such a one-sided document.

It's a shame, because we'd otherwise buy this house.  There is no need for all those "seller protections"...our standard PA is just fine.  Seller said take their addendum or leave it.  Left.

Would you agree to this seller's addendum?

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