The Hidden Risks of Using AI to Draft Real Estate Contracts
One of my readers recently emailed me a sales contract they generated using AI (artificial intelligence). The contract was meant to outline the terms for buying a home from a friend. While the using AI can be incredibly efficient in many areas of real estate, drafting legal documents like a sales contract is not one of them.
A Two-Page Contract? That’s a Red Flag
The first concern was that the contract was only two pages long. In my 25 years of experience, the shortest valid sales contract I’ve seen was four pages. Others have exceeded 50 pages. A two-page contract lacks essential elements, and unfortunately, that was the case here.
What Was Missing? Almost Everything
There was no mention of earnest money. In most states, contracts require some form of consideration, even if it is just one dollar.
There was no timeline or agreement on possession. Would the seller hand over the keys at closing? Would there be a rent-back period? None of that was included.
The contract also lacked a home inspection contingency, which the buyer had already planned on. Even more concerning, there was no reference to the title policy, the type of deed being conveyed, or who would provide the title insurance.
In many states, including where I’m based, the contract would not hold up due to missing state required legal language. It was so simple that it failed to provide even the most basic protections for either party.
What I Recommended Instead
I gave the buyer two options.
Option one: Hire a real estate attorney. Yes, it might cost between $1,000 and $3,000, but when you are making one of the largest purchases of your life, that investment is worth every penny. The attorney can draft a contract that protects your rights and ensures a smooth transaction.
Option two: Contact a local title company. Many title companies will assist in preparing a purchase agreement for free or a small fee, typically because they are earning a profit from providing the title insurance. I’ve seen some title companies prepare these agreements for as little as $250.
Either option is a much better path than relying solely on AI.
AI Has Potential, But It’s Not There Yet
AI tools are helpful in many aspects of life, and real estate is no exception. But when it comes to creating legally binding contracts, especially ones that differ dramatically from state to state, AI is not ready to go solo. Real estate laws vary not only by state but also by county and city. Some areas require well and septic inspections, others mandate specific point-of-sale inspections, and many have mandatory seller disclosures.
One federal requirement that AI often misses is the lead-based paint disclosure for homes built before 1978. Forgetting this document could open the door to legal trouble.
Play It Safe
If you are buying or selling without a real estate agent, it is essential to work with someone who understands your local laws. Whether that is an attorney or a title company, make sure a professional is involved.
Need Help Finding the Right Professional?
If you are considering a sale without an agent and want to make sure your transaction is legally sound, reach out. I am happy to connect you with a reputable real estate attorney or title company in your area who can help guide you through the process with confidence.
