Why You Should Use a State Contract

Known For Controversy

In today’s post, I will briefly try to address a controversial topic that I am known for.  Using a State Contract for your Wholesale deal.

Amongst all the teachings of mine that people find the most difficult to swallow, it is this one.  The belief that you are better served by using your State approved real estate contracts that your Realtors® use.

Statutes Of Frauds

Statutes of Frauds
Statutes of Frauds

Back in 1677, in the English courts, only the nobility was allowed to possess the land.  Hence the term “Estate”. Property that was considered “Real” (the Spanish root word is “Royal”) was given by the King as rewards for service, or loyalty. Thus the term “Real Estate” (from Royal Land) was transferred amongst the Dukes, Princes, etc.

Disputes amongst the parties sometimes would occur, and the only way the King could be able to hear the dispute in the Official Court was if the contracts that they had were in writing.  If it wasn’t in writing, the King could not act.  Thus, the “Statutes of Frauds” was conceived.

Essentially, it established that to be enforceable, certain contracts (including those of Real Estate transactions) must be in writing.  How they were written was left to the parties… but they must be in writing.

Contract Basics

In order for a contract to be legal, it must have a few features.  It must have some form of consideration, (a payment). A legal purpose, (Can’t kill someone).  Mutual Agreement of the parties, an Offer and Acceptance, as well as legally capable parties.

Your contract itself, in order to be enforceable (again, through the Statutes of Frauds) must be in writing.  Now, in truth, the contract could be written on a cocktail napkin in order for it to be legal, and enforceable… but good luck trying to open escrow with it!

Why A State Contract Rocks!

Now I’m not stupid.  I know that many of my listeners, and readers are not all Realtors®, and many of you feel as though a State Contract is “overkill” or “too much trouble.”  You might even think that the Seller “won’t sit through all that nonsense…”

Believe me.  I used to feel, and say the same things.

Heaven knows my Broker, who sold me on the idea, had a hard time convincing me.

But if you will allow me a few moments, I believe that I can make a significant improvement to your business if you simply “tweak” it a bit!

Dr. Shook To The Rescue

"Tweak" to Feel Better!
“Tweak” to Feel Better!

When I was a little kid, my Dad… (all 6’8″ 320 pounds of him) used to get “bent out of shape.”

You could always tell when he got this way..  He was cranky, and sore, and tired.  He used to say that he needed to go to his Osteopath, Dr. Shook to “Get him back in shape”.

He would go to the Doctor, and good old Dr. Shook would look at my father, and shake his head… “Oh Don, there you go again.. using your back!”  

He would do his “Osteopath things” and tweak, and crack, and manipulate my dad’s arms, legs, and spine around until the “snapping and cracking” would stop!

You would have thought that it would have killed him.. to hear my big Dad mutter curse words fit for a sailor under his breath.  The grunting and obvious discomfort that my Dad had at the hands of this Doctor, was sometimes a little hard to believe!

But, true to his era, my Dad would take the pain, and at the end… feel much better! I would see a visible “spring in his step” as we would leave his office.

Despite the occasional pain that he would suffer at the hand of the Osteopath, he would in the end… be better equipped to play with me, hang out with his family, and do his job with less pain.

Use Your Head, Not Your Back

After those meetings, my dad would always remind me…to work with my head, and not my back.  That way I could avoid working in the Salt Mines, and all the other physically demanding jobs that he had to do to support a growing family.

I learned that lesson well.  I’ve tried to apply it to every facet of my life.  When it comes to State Contracts, it is the same way.

Maybe you’ve felt that way.  You have a contract with a Seller, and let’s say it’s a two-page contract that you’ve downloaded from the Internet.  Of course, it’s legal.  Of course it’s enforceable.  It will get you from point a to point b. Heck, I’ve done it!

Point A To Point B...When Easy
Point A To Point B…When Easy

But what happens if you encounter problems along the way from Point A to Point B?

Does your current contract cover as many contingencies as you need, and more importantly, aid you in the sale?

A State Contract Is More Salable 

While we all agree that a Internet Contract will “work”,  the true question is… what will take us to the “next level” in our business?

If you are looking for an easy way to add buyers, as well as sellers to your investment inventory, then read on!

From a “Unlisted Property” or “Unrepresented Seller” perspective; a State Contract represents less questions.  If you are in an Attorney state, typically; the parties may use an Attorney generated form.

If you use a State Contract, no matter if you are in a Title State, or an Attorney closing State, there will be LESS for an opposing counsel to change.

Remember! In many cases, you are trying to assign these properties.  As such, the quality of the contract you are selling is the most paramount thing.  The more legible, and easier to understand your contract, the better it is.

Another thing that a State Contract has as an advantage over an Internet Contract is the ability for Realtors® to now bring their clients to your wholesale deals.

As Realtors® who invest, are bound to use State Approved contracts, it just makes sense.

By using a State Contract, (if you are licensed or not), you are able to now sell that contract to Realtors® and their clients. Thereby adding an entire buyer pool to your otherwise limited buyers.

By using a State Contract, you are displaying a level of professionalism that will help set you apart from your competitors.  Imagine the confidence that can be yours when your potential customer says “I need to have my lawyer review this…” and you can say with pride…

“Go ahead and have your attorney review it… It was written by attorneys!”

While I acknowledge, this will require an element of effort on your part to learn what your contract means, I know that you naturally understand that once you learn it, inside and out, backwards and forwards, you will be powerful!

Carrots and Sticks

Ok, so let’s have a bit of “Be honest”.   You aren’t going to sit down and study your State Contract without a few concrete reasons why you should.  So let’s just examine a few ideas that I believe will help incentivize you!

The Carrot, or the Stick?
The Carrot, or the Stick?

First, if you are a Realtor® who Invests, and you DON’T use a State Approved contract, in the unlikely event something “Goes Wrong” (Good old Murphy’s Law) and you need to appear before a Judge… what will be your explanation for NOT using a State Contract?

Now I’m no lawyer… but I’ve put one through school.. and I’m pretty sure they call that a “reasonable man” concept. Meaning, that if someone with our level of Real Estate knowledge (as a Realtor®) typically uses a State Contract on 99% of the transactions they do… even with massive modifications as REO companies typically do. The first question out of the opposing attorney’s mouth in your deposition will be…

“Mr./Ms. Realtor®, could you please explain to us why you chose NOT to use a State Contract?

From a Realtor® perspective, that is a tough question to answer.

But enough Sticks.. let’s talk Carrots.

In many State contracts, there are cancellation provisions within them that are extremely “Buyer Friendly”.  By changing, deleting, or removing sections that are irrelevant to your transaction, you can make them even MORE friendly.

On properties built prior to 1978, the Federal Law requires the homeowners to provide the buyer with an opportunity to inspect for Lead Based Paint.  This example of a “naturally occurring contingency” in all State contracts can be used to your advantage when negotiating… (adding, or subtracting inspection days).

Oftentimes, State contracts have mediation clauses within them that will help prevent your Seller from “backing out” and re-selling to another.  When you have the proper clauses written within your contract, the instant you get wind of them “pulling a fast one”, you can immediately notice them for “Anticipatory Breach”.

A simple letter from your attorney reminding them of their obligations under the state contract, and their anticipated breach of contract will immediately throw them into an obligatory mediation.  Many times, once they understand exactly what is going to happen through a long term, unwinnable mediation; they will either comply with the terms of the contract, or “make it right.”

Anticipatory Breach or Repudiation
Anticipatory Breach or Repudiation

This is only possible if you have “mediation type” clauses in your contract.  Things that specifically spell out what happens if someone doesn’t live up to their end of the deal.

The Power is In the Contract.

Understanding that you are selling the contract itself in an “assignment of contract” is reason enough to use a “top shelf” contract to put the “professional shine” to your business.

Whenever you have a problem, and you don’t know what to do, or what is happening next, or what your rights are. As yourself this simple question…

What does the Contract say?

If it doesn’t answer your problem, then you have a poorly written, insufficient contract.

Use a better contract, understand it better, write better, and you will have less problems.  Work smarter, not harder!

Until next time!

Have a Powerful Sales Day!




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