Real estate contract management can be a landmine to tread through without the support of the right tools, systems, and processes.
Considering that contract processes take up 18% of the sales cycle, you must ensure no time is wasted in collaboration with internal and external teams.
Effective real estate contract management software is a must-have for your in-house legal team. It provides proper visibility into contract terms and conditions and individual responsibilities to stakeholders.
As a result, in-house counsel saves 82% of their time while helping the sales teams leverage insights from present transactions to negotiate better and close more profitable deals in the future.
What is real estate contract management?
Real estate contract management is the process of managing real estate contractual transactions. This means creating, negotiating, implementing, monitoring, and terminating or renewing business contracts in the real estate industry.
Contract management for real estate encompasses a number of tasks, such as:
- drafting and negotiating contract terms and conditions,
- organizing and storing contract documents,
- tracking critical dates for signage, closure, and other purposes,
- ensuring compliance with legal and regulatory requirements,
- monitoring contract performance from creation to closure, and,
- resolving any disputes or issues that may arise during the contract period.
The workflows under real estate contract management ensure that everything through the entire contract lifecycle goes smoothly until your property is officially bought or sold.
Challenges in real estate contract management
Given the involvement of multiple stakeholders, the number of documents that need to be maintained accurately, and the time-sensitive requirements of real estate contracts, there are bound to be some challenges in managing real estate contracts.
#1 Document management and organization
Every real estate contract includes many documents, including purchase agreements, disclosures, inspection reports, and addendums. It might take a lot of time and effort to manage and organize these papers, ensure their accuracy and legitimacy, and securely store them in a centralized data repository.
#2 Compliance with legal and regulatory requirements
Real estate transactions entail jumping through many legal and regulatory hoops related to financing, property transfers, zoning, and the local environment. Risks such as title issues, environmental issues, or other unforeseen liabilities must be managed and mitigated—all of which call for careful due diligence, legal competence, and risk analysis, subject to market dynamics.
Failing to adhere to legal and regulatory compliance laws can lead to unnecessary disputes, penalties, and reputation damage.
#3 Timelines and deadlines
Real estate contracts always involve time-sensitive objectives subject to stringent deadlines. These could be for processes such as due diligence, loan approval, and closing, among other things. Ensuring the entire contract lifecycle moves at a stipulated pace can be difficult.
Missed deadlines or unfulfilled contractual obligations may have serious repercussions. Constant oversight and rapid response are necessary for efficient contract administration.
Also read: 8 Top Contract Management Software Platforms
#4 Contract negotiation and amendments
Like all other agreements, real estate contracts are also prone to deviations from pre-approved contract language and terms.
They may need to be modified or amended for a number of reasons, including inspections, financial difficulties, or changes to the conditions as deemed by one or more of the stakeholders. It might be difficult to correlate these modifications, provide accurate documentation, and get the required permissions, all in a timely manner keeping the contract lifecycle going smoothly.
Also read: Top Contract Negotiation Strategies
#5 Communication and collaboration among parties
Real estate transactions often include multiple parties—including buyers, sellers, agents, attorneys, and government entities. Interrelating and managing their expectations, interests, and responsibilities throughout the contract lifecycle can be difficult.
This is why ensuring proper communication and collaboration between the multiple parties in the contract is imperative. This involves planning and coordinating meetings between respective stakeholders, discussing terms, and harmonizing disagreements, especially when the parties are physically separated or are expecting different outcomes from the transaction.
This is why it is imperative for real estate contract management to be supported by the right tools and systems that make the lives of everyone involved easier.
Key elements of real estate contracts
Here is a list of the key elements a real estate contract needs to include to be considered valid.
#1 Parties involved and their roles
The real estate contract must state all key stakeholders involved by name. This includes mainly the buyer and seller but may also include a builder. It must include their name, address, and contact information. Both parties must be of legal age and sound minds.
A party to a legal contract must be at least 18 years old. Other parties deemed competent are also covered by this provision, including emancipated minors, people with valid powers of attorney, and those who can sign contracts for a business.
#2 Property description and details
This includes the property name, address, legal description, and any other details unique to the asset.
The contract may also include provisions pertaining to the conditions of the property being bought or sold. It may outline the current state of the property, any warranties provided by the seller, and even any repairs to be made by the seller before the property gets sold.
#3 Purchase price and payment terms
The purchase agreement must include the bid price mutually agreed upon by the buyer and the seller and the method by which it will be paid. Common approaches include paying in full with cash, getting a new mortgage with a cash down payment, or working out a deal with an existing mortgage. This information may be included in the purchase agreement or a financing addendum to describe the buyer's down payment and loan position.
In some cases, the seller may ask for earnest money. The buyer must give the seller money, exhibiting the former’s serious intent to purchase a property. If necessitated, earnest money requirements are frequently stated in the purchase agreement. Prices vary depending on the purchase and typically contribute to the final down payment.
Some sellers can decide to include clauses that state earnest money will be forfeited if the deal falls through due to financing complications at the buyer’s end. In other cases, the buyer may receive a complete return of the earnest money if certain requirements are not completed.
#4 Terms and conditions
In addition to payment clauses, there are multiple other terms and conditions that need to be included in a real estate contract. Here are some of them highlighted below:
- Closing procedures include the closing time and place, who is responsible for closing costs, and how the parties will split expenditures.
- Disclosures: These include information about the property’s condition, environmental hazards (like lead paint, methamphetamine, termite damage, sub-surface sewage, etc.), and any legal or financial issues that will impact the buyer upon purchasing the property.
- Title ownership and insurance: This attests to the fact that the seller has legal ownership of the property and has the authority to transfer the said asset to the buyer for a mutually agreed-upon price.
- Default and remediation: These include provisions for either party to demand remediation if there is a default to the signed terms and conditions. It may include forfeiture of earnest money, payment for damages, or termination of contract pending inspection based on raised disputes.
- Governing laws include specifications on which jurisdiction and its laws will control the contract's interpretation and execution throughout its lifecycle.
#5 Contingencies and conditions
In real estate contracts, "contingencies" and "conditions" refer to certain requirements that must be satisfied before the contract becomes enforceable—in the interest of one or both parties involved.
Contingencies may be devised for multiple purposes:
- Financing: This clause allows the buyer to cancel the agreement if they cannot find suitable financing for purchasing the property within a stipulated period
- Appraisal: This clause specifies that the purchase agreement is subject to the property's appraised value equal to or greater than the agreed-upon purchase price. If, for some reason, the appraisal value comes in below the purchase price, the buyer is allowed to re-negotiate the price or end the contract
- Inspection: This clause enables the buyer to have qualified professionals inspect the property to evaluate its state. If any hidden problems are discovered, the buyer can negotiate repairs, ask for a price reduction, or end the contract
- Title: This clause ensures the legitimacy of the title ownership. If the seller is found to have no right to sell the property, the buyer may end the contract without any financial liabilities. If other title issues like liens or other problems are detected, the buyer may have the right to resolve the issue or withdraw from the contract
- Homeowners Association (HOA) contingencies: This clause states that the buyer can review the HOA terms, regulations, and financials within a stipulated time period if the property is part of a Homeowners Association. If the buyer finds the conditions unsatisfactory, they can withdraw from the contract
5 best practices for real estate contract management
It may be difficult to smooth over operations and minimize potential risks in real estate contract management. However, following these five best practices may serve as a great starting point.
#1 Standardizing contract templates and clauses
Every real estate transaction is unique and depends on the specific conditions and interests of the multiple parties involved. However, this doesn’t mean you cannot standardize some clauses and templates to optimize the time and effort required to build your agreements.
“There is little worse than scrambling around looking for an ‘old’ contract that you can use as the basis for a ‘new’ contract.
The solution to this risky game of contract hide-and-seek is pretty basic—create templates for all of your company’s core agreements and use those templates as the basis for all of your deals (and update them yearly). Your template will be tailored to your business and to the level of acceptable risk (e.g., limits of liability, indemnity, etc.). Moreover, deals get done faster using templates.”
~ Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
Ten Things: Minimizing Risk in Commercial Contracts
To give you a clearer picture, standard contracts create precedents for performing the common processes without hassles and make resolving disputes (if any arise) far less difficult.
With SpotDraft’s contract templates, your in-house legal team may create high-volume contracts with built-in safeguards and approval routing workflows in minutes.
You can choose from one of the pre-designed templates provided by the software, or build your own, by adding or editing variables with our Microsoft Word plugin, Draftmate, and transform your existing documents into contract templates with just a few clicks.
Finding the ideal balance of standard language for your agreements with SpotDraft will speed up the bidding process, lighten your staff's effort, and ensure consistency and clarity across all agreements.
#2 Centralizing contract storage and retrieval
Real estate contracts involve many documents, often needing the attention of multiple parties at once. This requires high visibility into contract data accessible to involved parties but secured from unauthorized access. This is where a centralized data repository comes into play.
For efficient contract management, you must keep all your contracts and related documentation in a safe, central location online 24/7 and accessible to team members. This level of visibility helps real estate professionals quickly identify, query, filter, and report on the required information instead of scouring shared and local drives for agreement data.
Storing and assembling your contracts under SpotDraft's centralized contract repository is a great way to access all your key information at a glance. With advanced search filters and comprehensive full-text search, you can find any document you need in record time.
Moreover, contracts stored in the SpotDraft database are end-to-end encrypted and only allow role-based access—thus, ensuring that you mitigate any potential risks and keep your contracts 100% secure throughout their lifecycle.
Creating a library of contracts for storage and retrieval at opportune times can enable either party to make appropriate changes as needed and have a track record of the amendments to be brought to attention if required by any disputes that arise in the future.
#3 Implementing contract lifecycle management software
Technology has made great strides in contract management, and implementing the right contract lifecycle management (CLM) software for your real estate business can be a game-changer.
CLM software basically automates workflows for efficiency, facilitates collaboration amongst multiple stakeholders, stores, and documents data required for transactional processes, ensures that all parties meet the necessary legal and regulatory requirements, manages risks on contract indiscrepancies, and much more.
The best CLM software are equipped with the following:
- a central repository of data that is visible and accessible to all stakeholders involved, containing contract information like tax records, title records, pre-determined terms and conditions, purchase agreements, disclosures, custom settlements, and much more, on several contracts undertaken by the company;
- automated workflows for document creation, approval, and deadline tracking;
- collaborative tools for allowing the many parties involved to inform each other of developments and amendments in the contract;
- alerts and reminders for upcoming due dates and milestones for commencement, termination, or renewal of contracts;
- analytics and reporting tools to help real estate professionals keep abreast of crucial contract KPIs and their overall performance so that they may optimize any underperforming processes for time and efficiency; and,
- risk management tools that monitor contract terms for adherence to the juridical legal, environmental, and compliance laws to safeguard parties from paying penalties later.
The right CLM software can help you save time and costs on your contract management processes and scale your operations as you grow. Implementing a CLM has resulted in crisper handshakes between stakeholders, reducing cross-functional friction. One more advantage of implementing a CLM is version control.
“We are able to draft and redline contracts inside the CLM tool. Therefore, we no longer need to rely exclusively on tools such as MS Word and Google Docs. Now, all stakeholders can view and access just one true version of the contract.”
~ Igor Poroger, Director of Legal, EMEA, Vectra AI
How CLMs Empower Legal Teams in B2B SaaS Companies
#4 Establishing clear communication channels
Having multiple parties involved in a real estate transaction may make keeping everyone on the same page especially difficult. However, communication and collaboration between the buyer, seller, broker, attorney, and anyone involved is vital for effective real estate contract management.
You can establish clear communication channels to ensure timely information exchange, faster problem-solving, and higher customer satisfaction. There are multiple unilateral tools in the market that can help you with this initiative; however, we suggest trying out a contract management software like SpotDraft.
With SpotDraft’s MS Word collaborative editor, numerous stakeholders can draw, amend, and track contracts from a user-friendly interface. It also includes a secure and searchable repository for compiling all contract documents. This gives interested parties information about contract status, forthcoming renewals, deal volumes, and important contract KPIs.
Moreover, SpotDraft supports popular tech stack integrations, including Salesforce, HubSpot, Slack, Greenhouse, DocuSign, and Google Drive. As a result, stakeholders may work together using their current business tools rather than switching between different systems.
#5 Conducting regular contract audits and reviews
Ever heard of too many cooks spoiling the broth? Since a real estate transaction requires multiple parties to interact with each other and reach a consensus before signing a contract, there is great room for misunderstandings and misinformation if the amendments made to the contract are not under constant purview.
This is why it is important to regularly conduct contract audits and reviews. Here is how it is beneficial:
- helps identify vulnerabilities and mitigate risks through examination of all terms, obligations, and conditions listed in the contract;
- enables the detection of non-compliance issues and prevents other parties involved from unknowingly committing acts that call for financial penalties;
- aids in performance evaluation of the contract to find any areas for improvement and improve contractual relationships;
- helps with contract renewal and re-negotiations by allowing stakeholders to have a comprehensive view of which of the existing contracts are proving beneficial, subject to changing market conditions; and,
- ensures proper maintenance of documentation and up-to-date record-keeping for enhanced accuracy and easy information retrieval in the future.
SpotDraft has an audit trail feature, through which you can maintain a version history for every real estate contract you create. This helps you track changes made to the terms and conditions by multiple stakeholders over the contract lifecycle. These alterations could include revisions, amendments, approvals, and signages.
With a clear audit trail, you need not worry about maintaining the integrity of your real estate contracts
Manage your real estate contracts seamlessly with SpotDraft
To level with you, effective contract management is essential for real estate transactions. It necessitates precise attention to detail, from drafting and negotiating to compliance and record-keeping. You need the right real estate contract management software to handle your contracts, streamline processes, and improve efficiency.
With a purpose-driven platform like SpotDraft with features like document management, automated workflows, deadline trackers, and collaborative tools, you can simplify complicated real estate transactions. The software ensures transparency, compliance, and punctuality throughout the contract lifecycle to foster trust amongst the multiple parties involved and help them make informed decisions to safeguard their interests.
Are you interested in knowing more about how SpotDraft can optimize real estate contract management for your business and help you buy and sell properties more efficiently? Book a personalized demo with us today!