Regardless, if you are a first-time homebuyer or a person who has chosen to invest or become an investor in real estate, you should read this first. Real Estate Agents can also benefit. A reminder that when a person offers a property, it is exactly that, “their offer”.

As a Buyer, when you make an offer on a Property, you must remember that this is your offer. When signing the contracts and attaching your Exhibits, you must ensure that the clauses are in your best interest. Keep in mind that the real estate agent is working for himself and therefore to protect himself and not you, the Buyer or even the Seller in many cases.

What is a Form 122 – Mutual Release?

This is a contract. The real estate agent puts you on the line if he thinks you are going back on the original contract, which was signed to purchase the property. This contract is solely for the benefit of the Realtor and the Real Estate Company for which the Realtor works. This contract must be signed by both the ‘Buyer’ and the ‘Seller’. Buyer is asked to sign first. The contract is then passed to the Seller for signature.

Here’s the catch. When the Buyer signs the form (ie you), you are automatically releasing the real estate company to return your deposit money. You just gave up your rights to sue for your deposit, if it came to this. The Realtor then passes this form to the Seller for signature. If they sign it, everything should run smoothly and your deposit should be returned. If you decide not to sign this contract, you will not get your deposit back. The Seller does not receive his deposit either and it remains in the Trust Account of the Real Estate Company. At this point, you will need to sue the seller to get your deposit back.

When constructing your clauses in your Exhibits, make sure your writing is accurate and precise. One or more of its clauses must clearly establish an irrevocable instruction in the Agreement that addresses the situation. This is the only way you can be sure that your deposit will be returned to you. Any and all clauses that have to do with an irrevocable timeline or waiver of a condition (which is an irrevocable timeline) must be followed with a clear statement that the deposit will be returned in full immediately .

Always have your documents reviewed by an Attorney. In fact, keep in touch with your Lawyer throughout the process, to ensure that the Contracts are protecting you at all times.

The reason I suggest this is because you may think you have (and very well may have) a soundproof contract that will protect you. While doing your due diligence on the Property, you discover that some of the terms are not satisfactory and exercise your right to withdraw from the deal. Beware of the real estate agent, who doesn’t know how to read contracts and thinks he’s just backing out of the deal. The real estate agent will refuse to return your deposit money (which is held in escrow) and will insist that you sign and fill out a Form 122 – Mutual Release.

This form is controversial and if you research it, you will find many definitions. Here is mine. The bottom line is that once you sign it, you will have negated your original contract and left it up to the seller and realtor to get their deposit back. What the realtor doesn’t understand is that the original contract will stand in court. However, it is a huge inconvenience and a waste of time for an investor.

So make sure your contracts are set up correctly, because you never know when you’ll need that contract to go to court.

We hope you have found this information enlightening and beneficial for the next time you bid and build your contract.