I’d like to address what is know as the “weasel clause”, or “cover your ass” clause. When you talk to an investor and it gets to the point of signing contracts, rest assured in knowing that 95% of the time, the contract will be to protect the investor, not you. This one “clause” in the contract is the biggest thing you need to be concerned with. It can read something as simple as this:
This contract/agreement is subject to suitable inspection of premises by partner.
Any variation of this is also considered the same “weasel clause”. The investor is trying to accomplish two things. The first, is tie your house up with no liability. (you’ll notice the weasel clause goes hand-in-hand with a low, refundable earnest money, or hardly any at all). The second is to allow the investor to “market” the house to his own group of people with his added “finders fee” on top of what your contracted price is for. Please don’t fall for this unless you just don’t care how much you get for your house. Don’t get me wrong, I am not telling you these investors are not legitimate buyers, I am just telling you to not allow someone to tie you up in a contract that protects only themselves if something were to go awry. Here’s some steps to take to protect your end of the transaction:
You should be collecting earnest money (do not let it be held by their attorney or representative unless you wish to never see that money) to the tune of 1-2% of the contracted price. This earnest money should become non-refundable in 5 business days, or when all of the “contingencies” (inspection, termite, radon, your State required documents to close) are in line, whichever comes first.
Knock out all clauses that protect only the investor, the “weasel clauses”. Per the contract, the investors “partner” can be anyone. If they cannot know in a week if they want to buy your house, they are flipping it and tying you up!
Don’t be afraid the investor will walk away if you demand something. Think of it this way, If you demand legitimate protection and the investor walks away.. who do you think was going to get screwed in this transaction?
Ok, well I always looked at this clause as legitimate protection, but I suppose i see both sides of the story now. If i use my escape clause that kind of leaves the seller “out” no matter how i sugar coat it. anyone have any recomendations as to a way to do this and be mutually beneficial?
Try an option or even better a first right of refusal. This way if you are “tying up” the sellers property, they’ll at least have the right to ask you to “S**t or get off the pot”. You get what you need, as do the sellers. If you fall apart you won’t be putting the sellers at risk. Cool deal? I have some option agreements and first right clauses you can borrow from. Remember, I am not an attorney, so you’ll have to check the verbiage with the laws in your area… I can’t be liable fr helping! cheers.
I’ve gone against my better instincts twice now and went ahead because I trusted said investor to close quickly. The did not, didnt return my calls until the expiration of the “contract” and I lost 3 legit buyers. Could I pursue damages on this type of thing or am a just screwed, and have to keep my house on the market longer?