Multiple Choice Question:  What is the meaning of the blank space for the interest rate? Pick the best answer:

A. Zero.
B. Any.
C. Best prevailing.
D. Reasonable. 

Answer: Answer A is unlikely to be the best answer. It’s true that a blank space looks more or less like a “zero.” However, at “zero,” the buyer would be able to cancel under the loan contingency as long as the buyer could not get a no-interest loan. That interpretation would seem inconsistent with the general intent of buyers and sellers.

Answer B is a possible interpretation of the blank space for the interest rate. However, the final interpretation of the blank space will ultimately be decided, if needed, by a judge, jury, or arbitrator, on a case-by-case basis with consideration given to the totality of the circumstances, including the intent of the parties when entering into the agreement.

Answer C is another possible interpretation of the blank space, given that it may be what buyers and sellers generally intend.

Answer D is likely to be the best answer. When faced with an ambiguous term such as the blank space for the interest rate, a judge or arbitrator is likely to consider what would be reasonable under the circumstances.

Of course, as real estate practitioners, we don’t want to wait for a judge or arbitrator to decide what the blank space means or what would be reasonable under the circumstances. As a buyer’s agent, when we are helping our buyer write an offer, we should make sure that the buyer inserts an actual number in the blank space for the interest rate. That way, the buyer will be able to cancel if the interest rate offered by the buyer’s lender is higher than what the buyer has stated.

Similarly, as a listing agent, make sure, when receiving an offer with a blank space for the interest rate, that our seller counters with an actual number for the interest rate. Merely requiring the designated loan to be at the “best prevailing rate” is not a great idea, because a dispute could still arise as to what the actual number should be.

-Thank you to Kathy King (Calabasas and Encino Manager) for suggesting this week’s legal tip!

Copyright© 2022 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of July 18, 2022. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals. Written by Stella Ling, Esq.