What is new at the Poodle Ranch?

In past episodes, we discussed through paragraph 11 of the Commercial Purchase contract
This episode discusses Paragraphs 12 through 15.

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What is new at the Poodle Ranch?
Recently we discussed through paragraph 11 of the Commercial Purchase contract
Paragraph 12 to gives buyer and seller a space to provide for special specific concerns.
As a Senior Property Tax Consultant, I know that the County Appraisal District subscribes to the sales prices from property sales at commercial real estate websites and residential MLS HAR.com
If not on MLS we can insert language into Paragraph 12 Special Provisions to say “Seller and Seller’s Broker will not disclose the sales price to anyone except seller’s accountant and the IRS.”
We do this because, after the sale, the seller’s broker will change the status on the advertising website and immediately a box pops up, asking to record the sales price. This paragraph can say that broker can not disclose and therefore the broker will insert a price $1.
Know that Texas is one of 5 Non-disclosure states which does not require seller to disclose the sales price. However, they unsuccessfully tried to pass a bill to change that.
Additionally, the county appraisal district will send a letter to the seller, asking the seller to remit the sales price.
And the agent may get a phone call asking the sales price, which is confidential personal information.
IF the price was $1,000,000 and taxable appraised value is $700,000, the difference would increase taxes by approximately $7,500 per year.

After inspections a buyer may ask for the seller to do repairs, which may result in repairs which are to satisfactory to the buyer.
Or the buyer may ask for $$ in lieu of repairs.
In a commercial contract, we can add language that says “Seller will deposit $ “X” of sale proceeds into an account at the title company for buyer repairs.”
This is better than reducing the price because it requires that buyer bring less cash to closing table.
Often lenders will tell the title company to give the money to buyer at closing.
For large repair dollar amounts, some lenders may require the funds be sent to the lender for escrow. Then lender will send the a representative to the property to verify that buyer did the repairs and lender will then send that escrow repair money to buyer.
For residential contract, regulated lenders do not allow cash from seller to buyer, except we can use paragraph 12 “Settlement and other Expenses”
Whereby seller can contribute to buyer closing costs and mortgage fees.
This would be in lieu of buyer repairs.
However, buyer should be careful not to insert a dollar amount greater than what regulations allow. It depends on the type of residential regulated loan. Talk to the loan officer. This paragraph only applies to residential loans.
Some lenders do not want multi-tenant properties where the leases are month to month.
Ask your loan officer in advance of signing the contract. The lender may require buyer to deposit 6 months of rent with the lender until new leases are signed with tenants.

Paragraph 8 says that seller can not sign leases, therefore we can insert language in paragraph 12 Special Provisions which says “Seller will sign current leases with tenants which vary in length from 6 to 15 months at an amount not lower than current lease rate.”
The lender wants leases and does not want all tenants to move out in the same month.
Buyer wants short term leases because the buyer wants to later decide the price and terms of leases.

Frequently, buyers and sellers wat their pet clauses in Paragraph 12 Special Provisions which are not necessary because other paragraphs already says the same thing and are redundant.
The other agent does not understand the contract or/and can not explain the contract to the client.

Paragraph 13 discusses the normal closing costs that buyer and seller will pay for.

Paragraph 14 – Prorations – IF we close the deal between payments or due dates, then buyer and seller will settle with credits at closing table.
Sometimes it is efficient to settle some prorations outside of closing, such as rents, deposits and some assumed interest payments. Some lenders want it NOT on the closing statement.

Paragraph 14 B. Rollback Taxes
If the current owner has been getting property tax exemptions for agriculture, cattle or timber and the buyer changes the use of the property …. the tax exemption is void for past 5 years.
Then the taxes become due and payable for past 5 years exemptions and are the obligation of the buyer. That can be a lot of money.

Paragraph 15 – Default
Depending on who was in “breach of contract” …. That party pays.
This paragraph makes the contract to be binding. Oddly, it is frequently abused, especially by attorneys or parties not sure then want to buy or sell.
The key word are “Specific Performance”
They can strike and initial the enforcement of Specific Performance. So why have a contract?
Except to remind us of what we sorta kinda promised.
My suggestion …… read it but do not sign the contract.
Once It represented a so-called sophisticated buyer for 72 apt units and seller scratched “Specific Performance”.
The buyer spent $5,000 on acquisition costs.
The day before closing, I received a fax from seller to terminate the contract.
( I guess that tells you how long ago?)
Seller decided to sell instead to his partner.