How to Avoid Money-Losing Contracts as a Real Estate Agent

The high demand for purchasing property in Georgia over the past several years has drawn a lot of new energy and attention to the real estate agent profession. Whether it be brand new agents getting licensed for the first time, or seasoned part-time agents spending more time working with buyers and sellers. 

With this influx of real estate agent activity, my team and I have seen an uptick in agents who come to us saying they feel they got the “bad end” of a transaction. We have seen it on the buyer and the seller side, and it often comes down to a missing sentence or two in their contract.

For example, we recently worked with a real estate agent in the Atlanta area with many prior transactions under her belt. Closing on residential properties was nothing new to her. However, regardless of how experienced she was – she found herself in a frustrating, money-losing deal.

Details of the Money-Losing Transaction

In this real estate transaction, the agent – let’s call her Monica – had a contract with her client to list and sell their home. Monica also drafted another contract with the client stating that she would put all the work into the property to get it in proper marketable condition.

The secondary, renovation-related contract stated that she would upfront the costs for the work on the property. But that come closing, after relevant taxes and transaction fees, she would be paid net proceeds of the deal for anything above and beyond $210,000. 

Once the repair work was complete, Monica had spent $27,000. However, the property after taxes and fees sold for $226,000 and went directly to the seller. Monica submitted her detailed receipt records for the full $27,000 in repair costs to the seller. But the seller, per the basic terms of their agreement, only paid Monica $16,000 (the net proceeds of the sale above and beyond $210,000). 

Monica was very upset about this $11,000 shortfall, and this is when she approached me and my team to review the situation and see what options she had for collecting on the full $27,000. 

Upon the initial review of the renovation-related contract, it was clear that her intent was to be covered for her expenses for the project and net any additional proceeds beyond those costs (depending on the net selling price). With this honest, clear intent present in the contract and Monica’s strong desire to take the matter to court, we did just that.

The Judge’s Ruling

In reviewing the matter, the judge questioned why Monica submitted receipts to the seller for the $27,000 in repair work at closing. She explained the intent of the agreement and how she had detailed records of every dollar spent towards preparing the property for sale. 

The judge acknowledged her comments but pointed out that the contract says she is owed only the net sale proceeds above and beyond $210,000. Therefore by submitting those repair/renovation receipts to the seller at closing, she was acting in a way that attempted to amend the contract. And that, to the judge, was not acceptable. He took a hard line in saying that she was to receive the original $16,000 from the sale proceeds, and nothing more. 

Additionally, the judge pointed out that the proceeds of the sale were not held in escrow as Monica and the seller confirmed the split of funds. Instead, the funds went directly to the seller. In this judge’s view, when the money went to the seller, any flexibility for negotiations for the split of the proceeds was waived by Monica at that time.

The Undesired Outcome

When we left court, Monica was upset. She was still having a hard time seeing the judge’s perspective. Her intent from contract signing to closing of the transaction was, what she thought, clear and straightforward. However, the judge looked at the matter in a very technical, black and white manner. Unfortunately, not lending any flexibility for Monica’s honest intentions.

Monica, of course, had the option to legally pursue this matter further. Though we agreed that given the firm ruling from the initial judge – the risks (and costs) outweighed the benefits.

Moving Forward from the “Losing” Deal

To try to help Monica avoid further instances like this in her real estate career, I strongly urged her to have one or more outside parties review her contracts before signing. 

As a starting point, I suggested she have her real estate broker take a look. Or to be extra cautious, she should have an attorney well-versed in contract law give it a review. Especially if she plans to work up some kind of templated contract to be used on multiple deals.

Final Takeaways

Unfortunate, expensive real estate deals like the one Monica faced are extremely common, yet highly avoidable. Sometimes all it takes is one extra sentence or two to protect you from losing thousands of dollars. 

After all, you never know how the judge will rule. So no matter how clear you think your intentions are for a transaction, be sure to protect yourself before you sign on the dotted line. Have one or more third parties review your contracts so you can have the necessary language in your documents to keep you from going into the red in your real estate transactions.