Wednesday, February 17, 2010

Contracts - Read and Understand before Signing

I am a big believer that I should read and understand every document before signing, especially when related to financial matters. I never assume that signing is just a formality. That's because signed contracts are usually legally binding, requiring those that have signed to abide by the written elements. Here are my principles for signing a contract:
  • Read and verify every page. To me, it's important to confirm that what both parties agree to do and not do are documented in what I sign. If something is missing, I ask that it be included. If there is a verbal agreement not documented, I ask that it be included. If the document doesn't reflect what I believe is the agreement, I won't sign.

    In our last house closing, I read every document before signing. I was apologetic, since it doubled or tripled the time for our closing, but no one refused my right the read the documents. Fortunately, everything was as we had agreed, and the closing was completed.

  • Understand the documents. Most contracts are written in terms that I can understand. If I'm not sure about something, I will hire an expert to confirm my understanding. When spending thousands of dollars, it's worth investing a few hundred as insurance against an error.

    For most service or purchase contracts, I feel I am able to read and understand the contract myself. A couple years ago, we invested in a partnership, and I hired a lawyer to confirm that our liability was limited to only our investments.

  • Sign only when I agree completely. If I do not believe the contract properly represents my purchase, I won't sign, even if it means I lose the item. To me, it's better to not sign, than to enter into a contract with unfavorable terms for me.
  • Of course, I have made my share of mistakes with service and purchase contracts in the past. Once, I was given an additional service verbally by a salesperson, which was not honored by the owner because it was not in the purchase contract. However, based on experience, I have learned to either include an item in a contract, or to not expect to get the item without paying an additional cost.

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2010 Achievement Catalyst, LLC


    ParisGirl111 said...

    Always, Always read everything before signing. I can not tell you how many clients have called me stating they did not read the agreement before signing. They had no idea they were signing thousands of dollars aways. Also, consider it a bad sign if someone is rushing you to sign or will not let you read the agreement. This is a sure sign that you Truly need to read over the entire document and make sure you understand it.

    Lillie said...

    Unfortunately, some consumers are not yet at the point where they can afford to hire an expert to confirm their understanding. And, in some instances, hiring an expert is not a requirement. Yet, many consumers find themselves in their debt or a bad situation because they failed to take the time to read the fine print which would cost nothing other than a small investment in time. Attention to detail always pays off in the long run and in addition to that you are aware of what your rights are in black in white and know if you need to protest if they are being violated.