The phrase, “One size fits all,” is something that should never be applied to your contracts. It’s very important that your documents fit the individual deal you’re working on. If you get on the internet and get a generic contract, it may have verbiage in it that’s not compatible with the laws in your state. You don’t want that.
Each time you write a contract, the situation will change. Part of that change will be the deal that’s in front of you. Part of it will be the added knowledge you gained from the deals that are behind you.
Case in point:
We’re working on a deal in Adairsville where the owner needs some cash now but they can’t move until next month. We’re willing to purchase the house now, but with some conditions. Mainly, they have to be out by an agreed-upon date and leave the place clean.
This is a normal scenario for us when dealing with distressed sellers. They need money now, but they also need time to move once they have the funds. Two other deals this year taught me some great lessons that helped us word our contract better this time.
On the previous deals, the sellers had lots of stuff in the houses and needed time to move. With deal No. 1, the sellers moved out late and left two 30-yard dumpsters of trash. Not only did it cost us more to get the place trashed out, but it put us behind schedule by two weeks.
With deal No. 2, we made the move-out money conditional. They had to have all their stuff out by an agreed-upon time frame, or they lost it all. This backfired. I neglected to put a performance clause in our contract which would reduce the move-out money by a $100 every day they went past the move-out date. Because we made the money an all or nothing situation, the sellers became unmotivated once they went past the move-out date.
Both of these deals helped me write a better contract this time around.
On this deal, we agreed to a move-out date after closing as well as an amount to hold back. In order to keep everyone motivated, we worded our contract like this:
The seller’s move-out deposit will be returned to the seller as long as:
1) Seller vacates the property on or before the move-out date agreed to by buyer and seller.
2) Seller has removed all trash and made the property broom-swept clean
If the seller does not move from the property by the date seller agreed to, seller agrees to pay the buyer a holding-over fee of $100 per day until the seller vacates the property. The seller’s holding over fee will be deducted from the seller’s move-out deposit and paid to the buyer.
If on the move-out date, seller has not removed all trash and cleaned the property, buyer has the right to hire an appropriate contractor to remove trash and clean the property. All costs for hiring said contractor, rental of dumpsters, and any other costs incurred by buyer for this work will be deducted from the seller’s move-out deposit. Since this was not completed by seller on the move-out date, this will also constitute holding over, and the holding-over fee will begin to accrue.
On the date the property is cleaned and all trash removed, the move-out deposit will be prorated based off of contractors fees, if any, seller’s holding-over fees, if any, and a cashier’s check of that resulting amount will be delivered to seller.
By wording things this way, we kept the sellers motivated and covered ourselves should they not perform.
Jack Miller voiced it best when he said, “Draft documents by design, not default.” And as you gain more knowledge through the deals you do, your contracts should evolve to become better and better.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.
Good stuff: We have started (under the same conditions) getting immediate possession at closing then signing a lease. Same general terms its just a lease not part of the sale.