Real estate investors encounter a large number of contracts as part of the business. These include purchase contracts, contractor agreements, leases, development agreements, joint venture agreements, assignment agreements, loan documents, and so many more. These contracts form the legal relationship between the parties and can help ensure that the deal works as the contractor expects.
With that being said, very few investors have their contracts reviewed by an attorney. This is often the result of concern about paying too much to the lawyer or a belief that a the form provided by a “guru” is fine because the guru had it reviewed by his or her lawyer. The problem however is that rarely are these “gurus” located in the same state as the investor and the laws in Indiana are not the same in Kansas. This is especially true in real estate.
I am not going to lie and say it is cheap to hire a lawyer to review your contracts. On the other hand, if you have to go to court, you will quickly realize it is worth the expense. Litigation can cost $20,000 or more, just on attorney fees. Moreover, a lost deal can be thousands of dollars and may have been avoided if a lawyer had reviewed the contract early on in the process. Investors regularly invest in their businesses by attending training sessions or joining groups with other real estate investor. This is no different. Having a lawyer review your contracts is an investment into the future of your investing business.
The vast majority of real estate transactions that take place in the Kansas City area and that involve real estate agents utilize the standard Kansas City Regional Association of Realtors (KCRAR) standard forms. These forms are available to all Realtor members of the organization and reviewed by KCRAR attorneys. As such, they are great forms for standard real estate transactions.
With that being said, it is important to understand that these forms are developed for the standard retail real estate transaction. In other words, they are developed for one individual to sell to another individual on the MLS. They were not developed for real estate investors.
This does not mean that the KCRAR forms can not be used by real estate investors. There are many times that these forms can be right, especially when a flipper sells a property to an end buyer. The forms may not be the best, however, when the deal is unique or involves creative terms. This is because any standard form must — by design — be created for a standard or typical transaction. It is impossible for KCRAR or its lawyers to design forms to cover all of the unique deals that are created by real estate investors.
In order to address unique transactions, agents will often create addendums or add additional terms to the form contracts. There are two major concerns, however, when agents do this. First, the forms themselves have very limited space for adding additional language. As such, the agent will often use short hand or very general terms to describe the unique terms of the transaction. This is dangerous.
Where I see this a lot is in the resolution of unacceptable terms. For example, if an inspection report notes some evidence of water infiltration in the basement, an agent might write on the amendment “fix water infiltration” or “fix water infiltration in basement.” The parties to the transaction know what this means (or at least they think they do), but a court later may not if the judge is asked to intepete the contractor. Moreover, the term “fix” is ambiguous. What the buyer thinks is an appropriate fix for a defect, might not be the same as what the seller thinks. Therefore, this could create dispute later down the road when water again starts entering the basement.
The other issue with agent amendments to contracts is the fact that most agents are not lawyers. This doesn’t mean that some agents could not draft contract language as well as attorneys, but there are many that can not. Attorneys — at a minimum — take two full semesters of training that relates to drafting contract amendments — property law and contracts. In contrast, real estate agents take a one week course that touch on these topics, but along with many others such as real estate license laws, real estate marketing, and other aspects of being a real estate agent. Moreover, many attorneys have the advantage of seeing contract terms be litigated so as to understand who courts generally interpret contracts. As such, whenever there are unique terms to a contract, it is highly recommended you have an attorney review the contract and addenda.
Because contracts that utilize the KCRAR forms are very standard and we have reviewed hundreds of those contracts before, we can focus our review on just the additional language added by the agent. Therefore, we offer review of standard KCRAR forms for a flat rate of $175. You can schedule a time to go over your real estate contracts by clicking here or giving us a call.
Moreover, if you would like unlimited review of your KCRAR form contracts, we offer this — along with unlimited scheduled ten minute phone calls with a lawyer — as part of our Guarded Pockets™ program. You can learn more about this program by going to our Guarded Pockets™ webpage.
Document Review Process
Over the years we have been asked to review 100’s of documents and have learned that many times this is a rushed process. The client will send over a document and ask us to review it. We complete the review and then have a phone call or send over written comments. While this is effective to identify unusual or lopsided terms, it is not the best process for determining if the contract fully meets the goals of the client. Therefore, we have created a six-step process for reviewing contracts and documents that helps to ensure that we work cooperatively with the client to meet the goals sought by having an attorney review the contract.
Step 1: Sign up for Guarded Pockets™
If you are not yet a member of Guarded Pockets™, the first step is to become a member. In addition to allowing us to help with your business planning, Guarded Pockets™ also provides many other benefits, including unlimited scheduled phone calls with a real estate attorney, registered agent and deed of trust trustee services, state compliance monitoring, daily REO and distressed MLS listing emails, and discounted title and real estate brokerage services. You can learn more about Guarded Pockets™ or sign up for a free trial by clicking on this link.
Step 2: Sign up for Services
Once you are a member of Guarded Pockets™, you can sign up for our services including our document review services.
Step 3: Submit Documents for Review
If you have not already done so, this stage of the process is where you will submit the contract or documents for us to review. The easiest way to do this is through the case status app by sending us a message with the document attached. Alternatively, you can email your documents to firstname.lastname@example.org.
Step 4: Attorney Review
During this stage of the process an attorney will review your contract or documents to look for inconsistencies, drafting errors, terms that are very lopsided toward the other side or contrary to industry standards, and to ensure the contract meets the goals you expressed during the introductory phone call. Moreover, if you expressed questions about the contract, we will make sure we have those answers ready for the next step in the process. Because we want to be detailed and not rushed, this stage of the process can take up to a week depending on the length of the documents to be reviewed.
Step 5: Post Review Phone Call
Once we have reviewed your contract, we will schedule a time for another call with you to go over the results of the review. During this call, we will verbally advise about the items we noted during the review of the documents and will answer the questions you posed during the introductory phone call.
Step 6: Written Comments Prepared
If you elected to have written comments prepared, we will prepare those comments during this stage of the process. Written comments may include “track-changes” word documents or a written summary of the answers to your questions posed during the review process. We will begin working on these written comments during the initial review; but want to finalize the comments until after the post review phone call. The reason for this is that we want to make sure that the comments incorporate the conversation as there may be additional suggested changes or comments that can be removed based on the conversation. The final preparation of the written comments generally takes about two business days after the post review phone call.
Step 7: Review Complete
At this point the review is completed. If requested, we will send you a copy of the written comments and will close the file in our office.
The cost of document review is based on the number of pages in the document, excluding a cover page, exhibits containing only legal descriptions or images, and/or any signature pages. We do not review partial documents. This is not because we want to charge you more, but rather is because what is written on one page of a document may completely change what is written on another. Therefore, we can not provide reliable advice when we only review parts of a document. Moreover, the same is true when we don’t review addenda or amendments. Therefore, when you retain us to review a document or contract, you are agreeing to provide the entire document, including exhibits, amendments, and addenda.
You can view our current document review pricing by visiting this page on our website, which links to the exact same forms you will use to sign up for services after becoming a Guarded Pockets™ member.