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December 08, 2008

New Home Sale Contract - Part II

The new Erie County residential real estate contact is divided into two sections and you only sign at the end of the first section, in the middle of the document! Yes, it's true, a contract that is not to be signed at the end thereof.

The first section of the contract deals with purchase price, down payment, financing, and property description. These are material terms of the contract the seller and purchaser sign at the end of this section, then initial a box on the form indicating that they have read the attached terms and conditions set forth below.

The second section of the contract contains the attached terms and conditions. A close look at the contents of section two reveals that it covers issues such as attorney approval, title insurance, whether the property is to be surveyed and who pays for the survey, methods of payment of the purchase price, and more.

One would think that the items listed in this second section, denoted by an "ATC" before each numbered paragraph to represent "Attached Terms & Conditions", are just as material to the overall transaction as those items set forth in the first section of the contract.

For example, paragraph ATC8, titled "Possession", sets forth that the Purchaser is to receive possession of the property upon closing the purchase. However, the seller may need post-closing occupancy for any number of reasons and may want this paragraph changed. Depending upon the parties particular circumstances, the "Possession" paragraph could be the most important part of the whole contract.
Materiality, the level of importance of any particular paragraph of any contract such that without a meeting of the minds on the issues contained therein there can be no agreement, is unique to each particular transaction.

The new contract seems to downplay the importance of each of the ATC paragraphs by allowing the parties to sign off on having reviewed the paragraphs by initialing at the end of the first section, before the ATC section, rather than requiring them to place their signatures at the end of that section, the true end of the total contract.

I worry that the real estate broker or attorney draftsman will skim over the second section, knowing that signatures of the parties are not required. The temptation will be to quickly initial off at the end of the first section and then ignore the second section as just the usual "boilerplate" stuff.

Make sure you read and understand the entire contract before signing it and initialing off on the attached terms and conditions.