A good "weasel" clause! - Posted by Carey_PA

Posted by Brent_IL on May 20, 2002 at 16:01:00:

The contract price is broken down to a minimum of three categories that are the values of land, building (improvements), and personal property. If I break it even further, it’s by addendum. I use a standard 3% of the Total Sales Price which includes all three, plus an additional amount to reimburse me for any monies spent on the transaction up to a max of 3%. The maximum percentage payable of 6% allows me to make a loose connection to a common RE agency commission fee of 6%.

This clause comes after the financial details of the offer and before the part that discusses ?acceptable security.? The way I explain it to the seller is that it is a safeguard for him.

?Mr. Seller,

This is a good deal; one we are both happy with. However, no one knows about tomorrow. Let’s say that a week from now city officials decide that an ancillary runway for the new airport needs to run right through your living room, and they offer the owner five times what this building is really worth.

After today, the owner they will be talking to is me.

By utilizing your “Seller’s Option to Cancel” you can kick me out and grab a higher offer if you receive one. This clause gives you the right to cancel your contractual obligation with me anytime before we close simply by paying a token fee of 3% and reimbursing me for all money I’ve spent in connection with this transaction. You?re not stuck if something more profitable comes along. Now, this has nothing to do with your agency listing obligations, but as far as we are concerned, that’s more than fair, isn’t it"?

Under normal circumstances, I’ll let them out for three percent plus filing fees. Maybe, some additional escrow and legal fees that I actually incurred if they wait until the last minute. If I think the sellers or their attorneys are being belligerent or obnoxious, I’ll mess with them just because I can. I’ll add things like mileage on the car and various consultations to bring the reimbursable amount to the full 3%.

I’m big on privacy. I never record the purchase contract. Initially, there’s a memorandum of sale that states that there?s a purchase agreement on the house with no expiration date to the contract. Everything is in a trust environment. If it’s a FSBO, they sign a POA and I’ll put it into trust as attorney-in-fact. The seller also agrees to further assurance in the purchase contract and signs a mortgage on the subject property as security for his compliance with every and each term of the purchase contract. I record this and refer to an existing contract for purchase without recording the contract itself. If I have a significant amount of profit riding on the deal or to move things along, should there be any un-cooperation, I’ll threaten to foreclose and take the property. I record the offer presentation on tape so they don?t have much of a defense for not complying.

None of this is intended to steal someone?s property. When the sellers signed the offer, they thought it was a solution to more pressing needs or desires. My intention is to eliminate the lack of profit when there is buyer?s remorse, recalcitrance, and lack of follow-through caused by good-buddy mavens and mediocre lawyers.

All of my prospecting and screening activities lead up to the offer. I want to get paid something for every minute I spend with a seller.

A good “weasel” clause! - Posted by Carey_PA

Posted by Carey_PA on May 18, 2002 at 11:25:45:

Hi all!

I know that many new investors are always looking for good weasel clauses just in case they have to get out of a deal for whatever reason…i.e. they are scared, they can’t get financing, they can’t find an investor to flip too, etc.

And while I agree with most people that say don’t put weasel clauses in there because “IF you can’t close on the property IF YOU ABSOLUTELY had to, then don’t make the offer”

I think that a good thing to utilize in your agreements of sale that technically is NOT a weasel clause, but it would be a ligitmate way out if you think about it…is the time is of the essence statement. Now grant it, you should STILL be prepared to close if you have to, but what I have noticed is that no matter what I put in for the time is of the essence thing i.e. this offer must be excepted by midnight tomorrow, etc. that most of the time it gets IGNORED!!! So, it could be a legitimate way OUT of a deal, I suppose if you wanted to utilize it.

For instance, I made an offer on a property on 5/16 and I said that I needed an answer by 5/17. Did they give me an answer yesterday?? NOOOOOOOOOOOOOO! However, they did call me today and we negotiated a little bit and now on 5/18 we have a done deal! But if I wanted to, I’m sure I could have told them NO WAY, I needed an answer by yesterday! Of course I didn’t because I want the property :slight_smile:

Also, I made an offer last year to a bank telling them that I needed their answer within 3 days. Did they give me an answer within 3 days?? NOOOOOOOOOOOOOOOO! But they did call me back 2 WEEKS later and said that they accepted my offer! (I know I know, I should have said well now my offer has changed, etc. but I was excited to get it accepted so that was that :slight_smile:

Anyway that is just my .02 and I figured that I’d share it with you all just in case you wanted to utilize it. MAKE SURE THAT YOU ARE PREPARED TO FOLLOW THROUGH THOUGH IF YOU NEED TO!!!

CAREY

Re: A good “weasel” clause! - Posted by Brent_IL

Posted by Brent_IL on May 18, 2002 at 13:33:54:

After some thought, I took the “Time is of the essence” clause out of my purchase contract. At times, I want to drag things out until I find a buyer. I state the date of possession because other terms refer to it, but the time of settlement is labeled as “Estimated closing date.”

As part of my offer, every seller has the option to cancel their contract with me prior to closing by paying me money. Some of the folks I deal with see only black or white in a given situation. If they are scared off by their attorney, or familial mavens, they won’t want to close, but they don’t want to pay me either.

I have a cloud on the title so I don’t hassle them. I’ll wait until they sell or want to borrow money.

I ask sellers to deposit a great deal of documentation into escrow for my review prior to my final inspection. Those who try to comply are usually missing something. Those that don’t want to close will not submit the documentation.

I make the offers in person and date them to expire 10 minutes into the future. When I leave all the paperwork goes with me. By eliminating the essence clause I’ve diminished the seller’s claim that I wasn’t actively pursuing the deal. I want to get paid.

Re: A good “weasel” clause! - Posted by Mike Daly (GA)

Posted by Mike Daly (GA) on May 20, 2002 at 07:28:47:

What type of documentation do you ask the seller to put in escrow?

Re: A good “weasel” clause! - Posted by Brent_IL

Posted by Brent_IL on May 20, 2002 at 10:48:58:

Some of the language is awkward because I?m always running out of printing space and make concessions to fit in more items. And, I really don?t like ?and/or.?

"Seller agrees to deposit into escrow the following: All books records, leases, personal management and/or vender contracts, underlying encumbrances, concession and/or any other tenant agreements, tax bills, heating and utility bills for the previous 24 months, insurance policies, a current FHA or VA or MAI appraisal with included photographs, notices of property violation received prior to closing, and a preliminary title report describing the property which includes copies of all documents referred to in the report, and seller(s) warrant that the aforementioned deposits are complete and accurate All appraisers are subject to Purchaser?s approval.?

This clause goes on to say that the agreement is subject to my approval of the docs deposited into escrow. I have 14 working days after I?m notified by the Escrow Agent (my attorney) of his receipt of all of the above listed deposits into escrow to inspect the documents and approve or disapprove. This can take months. If I disapprove, I give the documents back and the seller returns any earnest money.

If the seller is anxious to close, they will ask me how to gather the information or to waive some of it and we’ll get the deal done. If they have buyer’s remorse or maven-generated fear, and don’t want to exercise their “Seller’s Option to Cancel” they’ll stop somewhere short of completion.

I’m in no hurry to close, and I try to mitigate any hard feelings. Periodically, the lawyer will send a request for missing documentation. Most times the sellers will decide go along with the original deal because it’s too expensive or too much of a hassle to do otherwise.

There are more sellers where they came from. If they don’t pay me, someone will pay my heirs.

Re: A good “weasel” clause! - Posted by GLen SoCal

Posted by GLen SoCal on May 20, 2002 at 13:59:58:

Brent-

What method do you use to arrive at a ‘cancellation fee’ amount? Do you use a percentage, standard amount, or an amount that seems doable until actually having to pay!?

Also, what document do you record to cloud the title, your option to purchase/ purchase agreement?

Thanks, Glen