3 Pitfalls of Purchase and Sale Agreements
Purchase and Sale Agreements can sometimes be fraught with problems if due diligence has not been applied or if professionals are not involved in the process. Real estate deals may fall through, costing valuable time and money. Many potential problems can be avoided by using a trusted and professional real estate broker who also has access to other professionals in the real estate industry. Some of the potential pitfalls that you may encounter in a purchase and sale agreement include:
Lacking Authority to Sell the Property
The beginning of a purchase and sale agreement should clearly identify the parties. If a business is purchasing the real estate, this information should be clearly identified and based on an existing business entity. Problems may arise when the seller is someone who does not actually own the property and does not have the legal authority to sell the property. Properties may be owned by businesses, be part of a trust or may be part of a community property agreement. A power of attorney may have been revoked or may have expired. If this type of situation arises, the sale may not be enforced because someone cannot sell what they do not own. It is important to ensure that the party selling the property has the legal capacity to enter into the agreement. Checking public records or with a title company may help uncover this information early in the process.
Lack of Proper Identification of the Property
The purchase and sale agreement should include an adequate description of the property. Some purchase and sale agreements may contain a partial, vague or otherwise incomplete legal description of the property to be bought. However, the property identification is an important element of the contract and may be necessary to enforce the contract. The description should contain more than just the physical or mailing address. Instead, it should include the legal description included on the deed and other official documents related to the property. The legal description describes a particular parcel of land. Each description is unique and unambiguous. The legal description may reference lots and blocks in a subdivision map.
The documents should also clearly indicate what property is provided with the sale and what property the seller has the right to take. This may include fixtures of the property, appliances, lighting or equipment. Having this clear description can avoid possible confusion.
For commercial properties, one of the most important considerations is how the property can be used. A party may have an intended use for the property that is inconsistent with zoning regulations. In some situations, a property may be grandfathered in some capacity but the flexibility does not extend to a new owner. Sellers should be aware of the zoned status of the property and disclose this information to interested buyers. An experienced broker can also help research potential issues that may center around zoning issues and help with the due diligence process.