Adding Personal Property to a residential real estate contract is commonplace and expected by all parties involved. So much so that both versions of the FAR/BAR residential contracts include a section stating that a boilerplate list of Personal Property items shall convey with the Real Property unless the parties specifically exclude them in writing. Additionally, the contracts make it clear that “Personal Property is included in the Purchase Price, has no contributory value, and shall be left for the Buyer.” In other words, the parties agree that the Personal Property does not have a specific monetary value assigned to it and is instead factored in with the Purchase Price. Ignoring or glossing over Sections 1(d) and (e) of the contracts — pertaining to included and excluded Personal Property items — is easily one of the most common mistakes made when drafting contracts. These mistakes often result in serious issues throughout the closing process, many times at the very end of the closing process. Below is a list of a few of the most common pitfalls to avoid when drafting the Personal Property sections of residential contracts:
- Financed Transactions. If the Buyer is obtaining a conventional loan, then a good rule of thumb is never to assign a value to Personal Property. For example, if the Seller is conveying certain furniture for an extra amount above and beyond the Purchase Price, do not make that part of the contract. Instead, handle that outside of closing and have a proper Bill of Sale document drafted and agreed to detailing the terms of that separate transaction. If the Personal Property is assigned a value in the contract, the lender is almost certainly going to tell the parties to remove that language. The reason is that the lender’s collateral is the real Property, not the personal Property, so the lender must be certain that the parties agree on the value of said real Property.
- “Turnkey Furnished”. Be very careful when using this term. The issue is that if you ask ten people exactly what “turnkey furnished” means, they will likely provide ten different answers. Thus, if the Buyer and Seller did not really have a meeting of the minds on exactly what this term means, then the chances are high that the Buyer is going to be surprised and disappointed about what was or what was not left at the Property when they attend their walk through inspection. So, do not just write in the word “turnkey furnished” and leave it at that. Instead, it is well worth the effort for listing agents and Sellers to create an inventory list that provides in detail the items that are staying at the Property or not. When a dispute arises, the parties can simply refer to said inventory list instead of arguing the definition of “turnkey furnished.”
Far too often, the Personal Property sections of residential contracts are overlooked or simply not given the attention they deserve. As mentioned above, issues involving Personal Property are right at the top of the list in terms of avoidable mistakes when drafting residential contracts. The list above is just a small sample of issues stemming from Personal Property, but following these tips will go a long way in helping realtors avoid last minute walk through nightmares! If you have any questions regarding Personal Property or any other real estate-related questions, please don’t hesitate to contact your local trusted real estate attorney.
