AGENT ADVISORY: HELPFUL HINTS FROM A LAWYER'S PERSPECTIVE

This newsletter has been created to help you better serve your clients. Future issues will provide legal updates, comments on current topics affecting residential transactions, and suggestions to help avoid the problems discussed. I hope you find these materials helpful. This inaugural issue is offered to you with my compliments. ALL FUTURE EDITIONS WILL BE SENT FREE OF CHARGE BY SUBSCRIPTION ONLY. If you would like to subscribe, please let me know: subscribe@wasserlaw.net.

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SHOOT FIRST (ASK QUESTIONS LATER)

Or, Don't Worry, Your Attorney Can Always Get You Out of the Contract.... can't he?

We all know that buying or selling a home is often the largest financial transaction of our client's lives. With so much money involved, conventional wisdom would seem to dictate that a lawyer look things over before the client signs her life away. We see this behavior in just about every other arena involving large financial transactions - no serious businessman or professional athlete or entertainer signs a large contract without consulting his or her lawyer. Those lawyers often spend days, weeks or longer reviewing, negotiating and re-negotiating the finer points of the agreement before the client dares sign. Every last detail. Not so with residential real estate. We ask our clients to shoot first and ask the lawyer questions later.

Of course, real estate clients are encouraged to cut the deal first, lest the opportunity be lost to a rival buyer or seller. The lawyers are counted on to reassure the clients and to "fix" whatever problems arise, relying on whatever attorney modification provision is incorporated in the form contract being used. Usually, the system works. But what about the remorseful buyer who changes his mind or the seller signs and then gets a better offer? Can an attorney get the client out of the deal?

The answer may depend on the form of the contract and the reasons why the client wants to "un-ring" the bell. To simply suggest that the lawyer can cancel the contract may not be right. In at least this one respect, the form of the contract matters.

The Contract Controls the Lawyer's Ability to Control the Contract

Obviously, people change their minds all the time. Buyers convince themselves that they are making a bad investment or overstepping their financial abilities. Sellers anticipate or receive second offers that are stronger than the ones accepted (sometimes they seem to come in bunches, don't they?) The older form contracts allowed lawyers near absolute power to simply "disapprove" the transaction and declare it void. No reason had to be stated. A simple notice was all that was required.

Over time, this solution fell into disfavor. Buyers and Seller wanted to retain as much flexibility for themselves as they could but did not want the other side to be able to simply walk away from the deal. As a result, attorney approval contingencies gave way to attorney modification clauses.

Lawyers can now "suggest" changes and try to negotiate with the other side. If the parties cannot agree on a resolution, the contract can be cancelled. Suggstions must be specified. Lawyers must act in good faith. Certain aspects of the deal such as the purchase prices and deadline dates may not be renegotiated.

Why the Distinction Matters

With all the political and economic uncertainty overshadowing the spring market, it seems reasonable to expect that unsettled clients are going to be more likely than ever to second guess themselves. (Anecdotally, I am already seeing this in my practice). The ability to undo a contract for a client (or I suppose, to lock the other side in) may be as important a consideration for buyers and sellers as the price, dates and buyer's financial strength. Attorney modification is both time consuming and uncertain. The process can take days and may or may not have the desired outcome. Attorney disapproval of a contract can be accomplished quickly, efficiently and results in an immediate, absolute termination of proceedings.

Choosing the "right" form contract may be more important than ever.

There are at least seven different forms of real estate contract in wide circulation in the community. Only one contains attorney disapproval language. The "multi-board contract" (a/k/a the common contract) alone allows lawyers the unequivocal right to terminate the transaction. The current revision, Version 3.0, was released just weeks ago by the Illinois Real Estate Lawyers Association (IRELA). It has already won the approval of several local bar associations and the major area real estate boards (Chicago Association of Realtors, the Northshore - Barrington, Northwest Association, Oak Park Board, Association of West/South Suburban Chicagoland and West Towns Boards of REALTORS and others).

CONCLUSION:

Savvy real estate agents are advised to familiarize themselves with this new tool, if for no other reason than to be able to offer clients outright attorney approval contingencies.

There are several other important differences between this form and its precursor and the several alternatives and in any given situation, there may be reasons why this form should be avoided and an alternative used in its place. No one contract is universally the best form for all transactions at all times. Notwithstanding our custom and practice, it remains my firm belief that all questions about the form of a proposed contract should be reviewed with legal counsel .

FOR MORE INFORMATION:

Please contact me if you would like the Internet link to Version 3.0 of the multi-board contract, if you would like more information about the other significant changes, or for other options such as alternate attorney review contingencies

Michael H. Wasserman
221 North LaSalle Street
Suite 2040
Chicago, IL 60601
Voice: 312.726.1512
Fax: 312.873.4043
Email: Mwass@wasserlaw.net