What are Estate Sale Contracts?
Although all types of sales can benefit from contracts, estate sales in particular are often pieced together with experience over the years to develop a standard sales process. Estate sale agreements fill in the gaps between the often rushed and unexpected nature of the sale. Without the agreement, it’s easy for sellers and buyers to forget to ask important questions during the process, whether this is the price (line-item accountability) or the closing date. They focus on the final sale, rather than the process leading up to it. It will cover the important issues, including details on the goods, what happens if they are damaged after valuing, and any specifics regarding the type of selling process in-person, online, bid, fixed price, etc. While not necessarily legally binding, it does offer some assurance for both parties that they are able to come back to this agreement for any issues or misunderstandings. This is particularly important given the impending timeline of an estate sale, as stressed and rushed executors and buyers are less likely to remember everything related to the process. For sellers , these agreements are essential in estate sales. It provides them with better communication with the buyer, forces them to specify important terms, and makes both parties more accountable for the sale afterwards. For example, if they have a disagreement over whether the payment was received or if what is included in the goods, they can refer to the written contract. Buyers would benefit from this process because it allows them to ask questions before making the purchase and be assured that they will not be liable for damages once the payment is finalized. This is crucial when looking for antiques or other highly-priced items, where the margin for error in pricing is very small. This way, both parties are protected, and although unlikely, there will be no ambiguity that the contract was agreed to verbally. It’s important to note that the estate sale contract is not a substitute for a purchase and sale agreement or any other property transfer agreement. The estate sale contract will specifically address the process by which items get purchased, while a property sale agreement will detail the process of transferring property and real estate.
What are the Main Components of an Estate Sale Contract?
An estate sale contract should address a number of key components to be enforceable and meet legal requirements. The contract should provide a clear description of the property, the terms and conditions of the sale, and payment details.
Property Description
The contract should include a detailed description of the items involved in the estate sale. For vehicles, for example, specific information such as the make, model, year, color, and VIN are helpful. For real property, the address, legal description, and any pertinent restrictions or reservation of rights should be mentioned. This information is critical to avoid future litigation that would be costly and time consuming. Once the sale contingency period has expired, the buyer is readying the sale for closing and will have complete rights to the property. If someone later comes forward claiming rights to title, it could be too late for them.
Terms of Sale
The contract clearly enumerate the all terms and conditions of the sale. It outlines the obligations of both the seller and buyer for the ongoing transaction and gives the purchaser a clear idea of what exactly they will receive at closing. Some of the terms that can impact the obligation of the seller after the contract is signed, include:
- The timeframe for the sale to close
- Age limits for any purchasers
- Buyer financing options
- Condition of the property
- Estoppel fee payments
Purchasers should look for a clause in the contract that allows them to pull out of the purchase if a property no longer meets their requirements. Also, a good contract will include a clause informing the seller to disclose all known defects with the real property and will allow repairs to the property prior to closing.
Payment
Coupled with concerns for the condition of a piece of property are buyer concerns for secure payment methods. Various modes of payment are acceptable and dependent on buyer concerns. PayPal is a direct method used by some buyers. Other payment methods allow for custodial arrangements during a waiting period. Trust accounts are legal instruments that some banks use to guarantee that buyers receive the funds when a deal has been transacted. Still other modes of payment require third-party persons or corporations to hold the funds until the transaction is fully executed.
Contingencies
Contingencies are an extremely important part of an estate sale contract. In many cases, purchasers want to ensure the condition of the property before finalizing their purchase. If an estate sale is final, but the buyer later questions the property, they may have difficulty getting their money back, even if they wanted to rescind the sale.
What are the Legal Requirements for Estate Sale Contracts?
Under the Statute of Frauds, contracts that cannot be performed within one year (including a contract of sale of an interest in real property) must be in writing in order to be enforceable; otherwise the sale is void, unless the buyer has possession or part performance of the contract takes place.
Generally, a written contract is not absolutely necessary for an oral contract to be valid; however, the party that seeks rescission (or specific performance) of an oral estate sale contract has the burden of establishing the terms of the agreement.
Some states require a "cooling off period" during which either party may cancel a contract for an estate sale. However, in most states there are no specific "cooling off period" laws or regulations governing estate sales.
The requirements for contracts of sale may vary from state to state; therefore it is advisable to check the law in your state, and if you are an estate executor, in the state where the decedent resided.
Common Mistakes with Estate Sale Contracts
With regard to estate sales, there are a number of very common mistakes that both sellers and buyers should be aware of:
a. Failure to Agree on Terms in Writing Prior to Sale. Many times seller(s) and buyer(s) will shake hands and agree on the price only to have a completely different agreement. In fact, this happens a lot and can cause all kinds of problems. Consider having an executor and the buyers sign a simple agreement prior to the sale if you have any mental reservations whatsoever.
b. Eliminating the Ability to Change Your Mind. The estate sale industry has become more sophisticated over the last 15 years. It is now common to have the potential buyers sign a binding agreement to purchase certain articles or items at a certain price. This is a good idea for keeping your business organized. This has been taken too far however in some cases, limiting the ability to make adjustments after the sale starts. Try to avoid binding agreements and give yourself the flexibility to make adjustments as the sale progresses.
c. Turnover Expectations. Because of the nature of the business, proper oversight of the turnover with regard to large amounts of cash receipts is critical.
d. Liability Limitations. Take care to limit your liability with regard to the sale of personal items. Make sure the agreement limits the liability of the seller in case there is a problem.
e. Cancelled Sales. It seems that there is one per sale, one person that does not show up to pick something up that they had purchased. Be prepared for this to happen and have an agreement in place regarding how or whether to fill these sales after the sale is closed.
How to Negotiate Estate Sale Contracts
Once the estate sale company has provided the seller with a contract, the process of negotiating the terms of the agreement begins. Any misunderstandings or questions regarding the contract should be resolved at this point. We advise our clients to take their time in reviewing the contract, scrutinizing every detail, and presenting to us any questions they may have. This is also a crucial time to determine if the seller has any requests or special concerns that may need to be addressed in the contract.
Many times the estate sale company will grant one or more "walk backs" as part of the contract negotiations. This is a period in which either party can cancel the contract without penalty. The contract should also give the client an opportunity to review the company’s marketing strategy as it relates to their estate sale. A good company should spend a little extra time during the initial stages discussing their plans and tactics for selling the client’s estate. An estate sale company’s willingness to negotiate the terms of the contract is a good sign that it is prepared to give the client the level of service they are contemplating receiving.
Pricing is another area of negotiation and may require some compromise on the part of the client . An agreement on pricing should be reached before the contract is signed. This is also a good opportunity for the client to vet the company’s pricing strategy and ask questions if something does not seem right. The client should be concerned if the estate sale company cannot clearly explain how their pricing strategy will work. If there is any discrepancy on the pricing strategy, the client should ask for clarification or modification. Once the contract is signed, it will be too late to correct the issue. Remember, if the pricing strategy is not understood by the client, chances are it will not be understood by prospective buyers at the sale. Buyer apprehension regarding pricing is often only discernible during a sale, however, if the client does not understand the strategy going in, there is little chance the buyer will understand.
The periodic review of the contract will help both the client and the estate sale company stay on the same page as the sale date approaches. Both parties should use these opportunities to evaluate any changes to the initial plan. Good estate sale companies will also conduct these periodic reviews throughout the time leading up to, and even after, the sale.
Role of a Lawyer in an Estate Sale Contract
Attorneys play a critical role in the sale and purchase of estates. Thus, estate sale contracts should always be drafted, or at the very least reviewed, by an attorney. Lawyers may understand the intricacies of estate sales.
An attorney will know the local real estate laws and current market trends, may be helpful in setting the right sale price, and can make sure that any legal issues regarding an estate are addressed. Estate sale contracts are constantly subject to changes; keeping up with them is a challenge. Having an attorney who understands the many federal, state, and local laws governing sales and purchases ensures compliance and protects both the estate and the buyer.
There are many other legal issues you should discuss with your attorney regarding the sale of an estate. For example, is the sale at a specified time and date? How do you allocate liability for property tax, income tax, and sales tax? Who has possession and control of the proceeds from the sale? Do vendors have the right to repossess unsold items? How do you handle unforseen obstacles that may arise during the sale? Estate sale laws and regulations vary from location to location, so it is important to consult an attorney who is familiar with your particular jurisdiction.
Conclusion: Why Estate Sale Contracts Are Important
A well-prepared estate sale contract can mean the difference between a smooth sale process and an overwhelming amount of post-sale headaches for both sellers and buyers. The seller’s carefully curated possessions storm-out in a whirlwind of chaos, and the buyer is left with more than a pile of unexpected treasures – including added stress. In contrast, a solid estate sale contract provides clarity about each party’s expectations, and therefore, the resulting outcome. It’s also an essential tool for managing any "what if" scenarios that may come up throughout the process.
Using a strong contract form that addresses these types of details in writing ahead of time will not only minimize the number of costly misunderstandings during and after an estate sale , but it will also save time – and sanity – for all parties involved. For parties who should happen to end up in litigation over any dispute arising from an estate sale, it can also serve as crucial evidence of the parties’ intentions, thereby preventing contestable issues in court.
While it’s probably safe to say that nobody enjoys the thought of needing to resort to litigation to resolve a dispute, having a strong contract and a well-documented process is the best way to go about mitigating the risk altogether.