Getting to Know Florida’s Real Estate Contracts
An integral part of any real estate transaction in Florida is the real estate contract itself. You simply cannot close on a property in this state (and by extension, in most states across the country) without having a written contract in hand. There are very few exceptions, but the vast majority of transactions require such a document to be created and signed. The legal principle behind this is that the contract represents your intentions when it comes to buying and selling property.
For buyers and sellers, this is a monumental undertaking, which is why it is imperative you have a qualified lawyer deal with it from the start. The goal of the contract is to make an enforceable agreement so that the parties know what to expect during the course of a transaction.
The Florida real estate contract is similar to any other legally binding contract in that it seeks to determine the duties and obligations each party faces. Although you will find a number of such documents for the sale of real estate either through your real estate agent or attorney , most of them contain several pieces of information. They include a description of the property being bought or sold, the price for the property, the closing date and the mutually acceptable method of payment.
While there may be other aspects of a real estate purchase contract, these are the most crucial in ensuring that the deal between the buyer and seller has been agreed upon. Having a well-written, airtight contract is essential to both parties, especially for the buyer, because the property is most likely the largest investment the buyer will make in his or her lifetime.
Basic Components of a Florida Real Estate Contract
Buyer and seller information, legal descriptions of the property, terms for payment of the purchase price, the period of time in which the purchaser has to perform his or her due diligence, conditions to be satisfied and what happens if they are not, conditions that must be satisfied prior to closing, the form of deed and other items related to closing, escrow agent information, title company details and contact information, and a host of other information make up a real estate contract. Most commonly, a real estate sales contract provides the buyer with X number of days in which to conduct his due diligence and further provides for an inspection period and financing period. If the deal does not work out, the buyer is entitled to a full refund of his deposit. There may also be a period of time in which the seller must replace the roof if there is an old roof. As an experienced real estate attorney, I have seen my fair share of what can go wrong if the terms of a contract are not specifically set forth. For example, there are times where a seller will wait until days before closing to give a buyer the green light to close on a property, leaving the buyer with virtually no time to do any type of due diligence or get financing in place. The buyer then asks for an extension of the date. Unfortunately, a contract such as this may end up costing a buyer his deposit money simply due to the fact that he cannot get the time necessary to do what is needed. This is but one example of many where people do not closely review the terms of their real estate contracts.
In this case, the contract did not provide for the inspection period, financing period, time to get insurance, etc. Simply because it was not spelled out in this instance does not mean that the provisions were not available or provided for by other parts of the contract. In this case, all provisions that governed the transaction and the parties were in another part of the contract and the closing attorney was given the job of reviewing the contract and determining how the deal should progress. In cases such as these, it is recommended to use an attorney versed with these types of documents and who can identify when certain provisions should be addressed in the contract.
Types of Florida Real Estate Contracts
In Florida, the purchase agreement is the most commonly used contract used to list and purchase a home. It’s used to outline the terms for the sale of real property and to ensure both parties are in agreement pertaining to the closing terms. Many times, depending on the property for purchase, the seller will provide the listing agent with a seller’s disclosure which will list all known defects in the property, the age of the roof, whether any major repairs have occurred, etc. The seller has a duty to disclose the defects listed in the disclosure and may face liability if the buyer learns about defects not disclosed.
In Florida, both a seller and/or a landlord may consent to a lease agreement with a term that may be either expressed or implied by law. A lease agreement is one of the most common types of contracts entered into amongst parties where the landlord conveys a right to the tenant for the use and possession of property, subject to restrictions. The tenant and/or landlord agree to pay rent pursuant to the written lease agreement which also may impose certain restrictions on the leased property, such as describing how many individuals can reside in the property, pet restrictions, noise limitations, restrictions regarding minor repairs, obligations to inform of major repairs, etc. Both parties need to understand the rights and responsibilities imposed under lease agreements.
An option contract is an agreement that allows the buyer to purchase the property at a particular price within a specified period of time. The option requires consideration by the buyer in order to exercise the contract.
Important Legal Requirements and Considerations
The law of contracts is found in the Florida Uniform Commercial Code, the common law, case law, and Florida Statutes. The statute of frauds is a body of law that requires contracts to be evidenced by a writing to be enforceable. Florida Statute §725.01 requires real estate contracts to be in writing and signed to be enforceable. In some circumstances, a contract will still be enforceable even if it is not in the form required by the statute of frauds. For example, if a buyer enters into an oral contract to buy real property, but then starts construction on his or her new home, this may be considered sufficient to create an exception to the Statute of Frauds. Plaintiff would have relied on the existence of the contract and the Defendant would have been able to estop or prevent the buyer from changing his mind by not following through with the contract.
In addition, once a contract including the statute of frauds has been signed by the parties, it cannot be modified without the consent of both parties. Even if no enforcement action is pursued by one party, an oral modification to a written contract is still not enforceable. New State Ice Co. v. Liebmann, 285 U.S. 262, 52 S. Ct. 790 (1932).
Contingencies and Special Provisions
Contingencies and special clauses are additional provisions in Florida real estate contracts that allow buyers and sellers to include special circumstances that need to be addressed during the transaction. They can be a double-edged sword, offering additional protection for one or both parties, but if not met they can have dire consequences if not handled properly. Below is a run-down of some of the most common contingencies and special clauses included in Florida real estate contracts.
Home Inspection Clause
A home inspection clause is typically included as a contingency in a residential real estate sales contract that allows the purchaser a given period of time to have a professional inspection conducted on the property prior to closing. If the inspection reveals issues with the home, the buyer may choose to back out of the agreement. If the clause did not contain an ending date, then the inspection would need to be completed within a reasonable time.
Financing Contingency
Also known as a loan contingency, a financing contingency protects the buyer if he or she is unable to secure a loan under the terms and conditions agreed to in the sales contract. This type of clause is included in most Florida contracts and is most frequently found in residential real estate transactions. This contingency should list the period of time allotted to secure financing, the amount of the financing that the buyer is required to obtain and the type of financing that is needed.
Exit Clause
A sale in which the buyer has the right to terminate the contract for any reason, provided that this occurs within a given time period. The exit clause protects the buyer in the event that the terms and conditions of the sale are unsatisfactory. Without this clause, the failure to secure financing could provide grounds for the seller to keep the deposit and attempt to seek additional damages.
Financing Clauses
Besides loan contingencies, there are financing clauses that may be included which identify the party responsible for obtaining financing for the sale and the source of the funds to be provided. For a cash sale, the financing clause should contain language addressing the source of the funds for the purchase price. A type of financing clause that may be included in residential real estate transactions is the Seller Financing clause. This clause defines the number of months over which payment, interest and any other relevant financing information is to be provided. Another type of financing clause is the Short Sale Financing clause, which specifies that the sales contract is contingent upon the short sale financing being approved. Without these clauses, financing is implied but not specifically detailed.
If you are buying or selling real estate in Florida, consider retaining the services of an experienced Florida real estate attorney.
Using a Real Estate Agent or Attorney
Real estate agents often act as the primary representatives for buyers and sellers in drafting and negotiating the various offers and counteroffer that comprise a contract to sell residential property. Given the nuances of Florida real estate law, the services of a knowledgeable Florida attorney should be obtained prior to signing any contract. A Florida real estate attorney has the requisite knowledge and expertise to identify issues not easily recognized by a buyer or seller. Once a contract has been signed, usually the agent then facilitates the contract process from deposit through closing , working with the attorneys where necessary to carry out the contract terms and conditions. In addition to acting as a negotiator of the agreement through initial acceptance, the real estate attorney has a key role in: This is just general information about the role of attorneys and brokers in the formation of agreements to sell residential real estate. I would encourage people ready to get involved in a real estate transaction in Florida to seek the advice of a real estate attorney, who will make sure your interests are protected and that you are making informed decisions throughout the process.
How to Negotiate Florida Real Estate Contracts
Buying or selling property in Florida can be a complex transaction, but the right contract to do that can help to avoid many issues. Negotiating that contract is even more complex, but essential to ensure that both buyer and seller get what they want from the sale.
How to Negotiate
When negotiating the final terms of a contract, take these tips into account:
- Understand contractual language—it’s always best to keep a lawyer on hand, especially for more complex contracts, but understanding common contractual language ahead of time will prevent delays and the need for multiple drafts.
- Know what you ultimately want from a sale—this will make it easier to identify when an offer is not beneficial to you.
- Use an agent to have a buffer between yourself and the other party, and to have someone with experience review the contract and offer suggestions for negotiation.
- Do not let emotions dictate business decisions—especially in cases where the buyer and seller have an emotional link to the property.
Common Points of Negotiation
There are some points that will regularly surface when negotiating real estate contracts:
– Contingencies—some buyers and sellers may want certain contingencies in place to protect them from issues. It’s recommended that both parties avoid specific features that could cause an issue if not properly identified or explained.
– Financing information—if the buyer isn’t paying all cash and needs to obtain financing through a bank, make sure the agreement covers the amount of financing, when the financing must go through and details about the loan being used.
While it’s possible to negotiate certain aspects of a deal on your own, it’s important to get assistance from a capable lawyer and realtor to help ensure your interests are safeguarded.
What Happens If You Breach a Real Estate Contract
If a party to a Florida real estate contract does not perform their obligations, they may be liable for what is called "breach of contract." A party can breach a contract in a number of ways. For example, the buyer may fail to obtain financing by a specified date, or the seller may fail to fulfill a contingency prior to closing. Depending on how the contract is structured, remedies for a breach can vary.
Any kind of breach of a real estate contract in Florida gives the injured party the right to file a lawsuit against the breaching party. However, there are two primary kinds of breach of contract claims that can be filed—that differentiating factor is whether the breach was one of an express term of the contract or if it is a breach of the implied covenant of good faith and fair dealing.
Examples of an express term include: Examples of the implied covenant (and what the court would look at in determining if implicit assurances were made to allow the other party to sustain a reasonable reliance upon them) include: A successful breach of contract lawsuit can allow a Florida court to make the party who breached the contract liable for damages. Florida courts take a variety of factors into account in determining damages, but it is advisable for both parties to perform their due diligence at the earliest possible moment.
These damages are often referred to as "expectation damages" because they are meant to seek to put the non-breaching party into the position it would be in had the contract been fulfilled.
For example, the seller could be entitled to the earnest money down payment as an actual damages award under a liquidated damages provision or the buyer could be entitled to its expectation damages plus attorneys’ fees under an attorney’s fees provision in the contract.
Another remedy available to an injured party is "specific performance and equitable remedies." Sometimes a party may seek to get equitable relief, rather than the monetary damages that are sought through a standard breach of contract case. Equitable relief allows parties to go to the court and ask the judges for "equitable" results instead of results that are based solely in legal doctrine. This usually applies in the following cases: The underlying goal of this equitable relief is get a court to create balance or equilibrium between the parties, whereas legal relief is meant to compensate a party financially. Specific performance is one of the most common legal remedies granted in these situations, but a person could also seek any of the aforementioned equitable remedies listed above.
In a real estate contract situation, an injured party could seek the following: An experienced Florida real estate attorney can help you determine which of these options may be best for your situation.
Bottom Line: Florida Real Estate Contracts
In this article, we have examined the key components of Florida real estate contracts, looking at common forms used in residential transactions and breaking down the most important clauses. We have seen how even small wording changes can affect the outcome of a deal, and how clauses that seem entirely explanatory can actually create binding obligations.
If you take anything away from the analysis, it should be that knowing what a Florida real estate contract contains and how it is likely to affect the buyer and seller is invaluable both when you are deciding whether to sign it and when you are preparing to finalize a sale. For Florida real estate sellers , adequate preparation involves receiving the best price available for your property. This requires an understanding of your local real estate market so you can avoid losing money by pricing your home too low. Buyers, on the other hand, need to understand closing costs and other obligations they may not have considered that will arise during the course of the transaction. You also need to understand the hidden costs that could come up and endanger your real estate financing.
Buying and selling real estate is a complicated endeavor but an understanding of Florida real estate contracts is unfortunately necessary for you to make informed decisions and protect your best interests. If you are thinking about buying or selling Florida real estate, we recommend you contact an experienced real estate attorney to get you started.