Edgewood, WA Real Estate Blog

I found it in the fine print of the boilerplate.

Representing a buyer client purchasing a new home, we’d drafted a purchase and sale agreement from standard MLS (multiple listing service) forms. Then came time to scrutinize the builder’s “standard” addendum.

Ever notice how many new home builders seem to have disjointed addenda? They don’t flow. Seems like the result of one, or both, of two things: they saw something in some other builder’s contract they liked, or they got sued for something and don’t want it to happen again. Presto… a new clause added.

I digress. This builder’s addendum looked familiar. I realized I’d seen it or something very similar four or five years earlier. Now I was suspicious. And then I found it, tucked into a long, seemingly insignificant paragraph.

The clause that says (and I’m paraphrasing here):
in the event of any dispute, the builder reserves the right to return the earnest money to the buyer and terminate the contract.

I was surprised because this was ground covered four or five years ago – an illusory contract. I’d suspected it the first time I came across the clause and run it past our corporate attorney (while I was with John L Scott – so you know who).

Sure enough, he confirmed it: the clause rendered it an illusory contract, unenforceable by either party. Naturally, I struck the clause and we proceeded to negotiate other terms.

The builder’s agent didn’t object to removal and didn’t seem surprised at it’s the presence. I didn’t think much about it until now, now that it again popped up four or five years later.

What if the seller included the clause making the contract illusory on purpose?

Most buyers (and unfortunately many agents) aren’t going to recognize an illusory contract (let alone know the ramifications). They’ll think they have a binding contract. If everything goes as planned, the sale will close as anticipated – regardless of the validity of the contract.

If a dispute arises, they can back out at no cost to themselves – besides, it’s an illusory contract, unenforceable by either party.

If they get caught, that is, an astute buyer or their agent calls them on the clause, they can remove just say, oops… and be in no worse position.

Let me make the usual disclaimers – I’m not a lawyer, and am not providing legal advise. Consult your own attorney, your mileage may vary, etc, etc.

But check the addenda fine print. If you spot language similar to the above, you may just want to ring up legal counsel for advice.