(And Why it Matters)

Preapproval subject to the Seller paying 3% toward the Buyer’s Closing Costs.

–Lender¬†Preapproval Letter

Lawyers — and Realtors who used to be lawyers ūüôā —¬†know that if a term isn’t included in a contract . .¬† . it’s not in the contract.

That’s because of something called an “integration clause” — an obscure¬†term buried at the end of virtually every standard business contract which prevents one party or the other later claiming that a key term or provision was¬†omitted.

In turn,¬†that begs the interesting question, “Does a lender pre-approval letter that¬†stipulates that the Seller is to pay¬†3% in points legally bind the Seller,¬†when the actual Purchase Agreement is silent on that . . . uh, point?”

Legal Analysis (vs. Practical) 

The lawyerly answer is “no,” because of the integration clause language in the standard Minnesota residential Purchase Agreement.

However, the practical Realtor answer is very much “yes.”

That’s because, unless it’s a cash deal, the purchase agreement invariably includes a Financing Contingency, which¬†provides that if the Buyer can’t get a mortgage, the deal’s off.

Winning the Battle, Losing the . . . Deal

So, if the Seller — citing the Purchase Agreement — declines to pay 3% in points, the Financing Contingency fails and there’s no deal.

Which means that if the Seller wants to sell (at least to this particular Buyer) . . . they’re likely on the hook for 3% in seller-paid points.

P.S.:¬† The foregoing would be Exhibit A in why Listing agents (representing Sellers) should always carefully review the Buyer’s Preapproval Letter.

And no, neither I nor my clients appreciate “gotcha clauses” (if that’s indeed what was going in this very much non-hypothetical case).

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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