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Rachel LaMar, J.D.
Broker, Attorney, Owner
LaMar Real Estate
Rachel@LaMarRealEstate.org
Cellular 760-310-9466
CA BRE# 01399682

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News, Views and Opinions on Real Estate, Law and the North San Diego Community

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Rachel LaMar, J.D.
Broker, Attorney, Owner
LaMar Real Estate
Rachel@LaMarRealEstate.org
Cellular 760-310-9466
CA BRE# 01399682

News, Views and Opinions on Real Estate, Law and the North San Diego Community

Don’t Blow Your Real Estate Purchase: Understanding Material Terms

Understanding the difference between material and non-material terms in a real estate contract is of great importance to the real estate purchaser. While most agents understand need for specificity in real estate contracts, buyers and sellers should also know the difference between material and non-material terms in order to avoid potential problems with the sale of property.

Material terms to a contract are those that affect the agreement as a whole, such as whether a buyer will pay cash or get a loan, the price of the sale or possibly the closing date. If the buyer breaches a material term s/he risks losing the initial deposit, as well as a possible lawsuit/arbitration.

Some examples of material terms include purchase price, close of escrow deadlines, and other terms in the contract upon which acceptance was based.

In most contracts where a loan is obtained it will not be considered a material term if the loan rate or product differs from that described in the contract, so long as the buyer can still perform within the specified time frames. But if a buyer needs to change a material term it can be considered a breach, giving the seller the ability to cancel the contract.

Take the example of a buyer who has made a cash offer but decides to obtain a loan after acceptance. As this is a material term the agent will need to approach the listing agent and ask if the seller would be amenable to this change. Oftentimes it could create a delay in closing, and could be a problem in a short sale transaction (where lenders often approve sales at lower price points when cash offers are presented). The buyer’s agent will need to discuss this change with the listing agent to see if this is possible, and it then should be put in writing and signed by all parties to the contract. If not, the buyer is bound to proceed with the terms as they were defined in the contract, unless that is impossible and you have not yet removed contingencies.

When writing a contract for the purchase of real estate it is imperative to have all the information at hand so as to avoid a material breach after acceptance. Agents should talk to the lender and make sure their buyer is qualified, discuss important dates with buyers, check current proof of funds on cash transactions – these are all things agents know but sometimes overlook. Many potential issues are covered during the contingency period, meaning that if the buyer cannot qualify for the loan s/he wanted during that time, or if a problem is discovered with the property after a home inspection, it is not considered a breach and the buyer can choose not to proceed without repercussions.

Doing your homework early, before submitting a contract, is a win-win for all parties to real estate contracts. Do not worry – that is why you have an agent representing you, and s/he can help walk you through it. Now more than ever it is critical to be diligent, so make sure your agent explains the important details.

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