New sales contract forms shift balance away from buyers

December 16, 2011

The Greater Capital Area Association of Realtors (GCAAR) has just issued revised residential real estate sales contract forms that make sweeping changes to the way business has been conducted in the region.

These forms, which become effective Jan. 1, affect real estate transactions in Maryland, the District and to a lesser extent, Northern Virginia. Everyone planning to be involved in the local real estate scene in the new year should read and understand these new forms thoroughly before proceeding.

For many years, these standardized forms were basically designed to protect real estate agents and keep them out of trouble. Despite their historically self-serving nature, these forms tended to be quite fair and balanced to buyers and sellers alike. The current changes, however, seem to have tilted the playing field more toward the seller.

Starting in January, all properties being sold using the new forms are being sold as is. What this means is that unless buyers insert inspection contingency clauses or seller’s property condition representations into their contracts, the buyers will have no protection if the home is later discovered to have unacceptable or even defective, unsafe or unsanitary structural damage or components.

Sellers will not be liable for conveying defective or even non-working plumbing, heating, ventilation, air conditioning and other systems. The seller’s sole responsibility is to deliver the property “free and clear of trash and debris, broom clean and in substantially the same physical condition as determined” on contract date, date of home inspection or other agreed-upon date. Gone are the days when buyers could rely on the seller’s express written warranty that all systems are in good working order and repair. The seller is not required to make even lender-required repairs in the event that the buyer’s lender requires that repairs be made as a condition of the loan.

There is, however, some good news for home buyers in that agents also have revised their six-page addendum of clauses to include two mutually exclusive forms of home inspection clauses. The first paragraph, called Home Inspection Contingency, provides the buyer with a right to conduct a home inspection and present the seller with a list of items that the buyer wants the seller to replace or repair.

The buyer can also request dollar credit in lieu of repair or replacement of the unsatisfactory inspection item. After receiving a copy of the home inspection report and the buyer’s list of requested repairs, replacements or dollar credits, the seller can opt to make repairs, replacements or provide credits. The seller can decline to make any repairs or concessions, but must notify the buyer of such a decision within three days of receiving the buyer’s inspection report and notice. Failure to provide the three-day notice may deem the seller to have agreed to the buyer’s requests.

The other inspection contingency in the second paragraph of the addendum of clauses is called General Inspection Contingency (No Right to Negotiate). As the name implies, this inspection does not give the buyer any right to ask the seller to make any repairs or concessions. The inspections provided for by this clause are for informational purposes only. If the inspection is unsatisfactory to the buyer in his sole and absolute discretion, his only right at that point is to notify the seller that the contract is void and to receive his deposit back.

Under either inspection clause, it is critical that the buyer send his notice to the seller before the stipulated inspection deadline. Failure to meet this deadline will result in the contingency terminating and the contract remaining in full force.

Other notable changes to the real estate sales contract include the financing and appraisal contingencies being removed from the body of the contract into their own separate addenda. Thus, if a buyer wants the benefits of these contingencies, he must make sure that he asks for them. There is no longer a list of possible addenda and contingencies as there was in prior versions of these contracts.

That mini-checklist was useful in informing buyers and sellers that various contingencies were available. Now the burden is on the party preparing the contract to advise everyone that additional pre-printed clauses may be available to protect their interests or that clauses can be drafted from scratch to customize the deal to meet their needs.

The revised sales contract incorporates specific jurisdictional addenda for D.C., Maryland or Virginia. These jurisdictional addenda, which conform to the new 2012 regional sales contract, address how local items are to be handled, such as grantor’s, transfer, recordation taxes and fees. It is imperative for home buyers and sellers opting for the new forms to use only the most recent editions for their specific jurisdiction. Parties should use the jurisdictional addenda for location of the property, regardless of where they reside.

Finally, these new forms are not mandatory and, in fact, are drafted, copyrighted and designed for GCAAR member use only. While it is perfectly legal and often desirable to amend these forms using separate addendum, all jurisdictions have laws prohibiting the unauthorized practice of law and thus non-lawyers must be cautious when drafting legal contracts for others.

If you are contemplating a real estate transaction in the coming year, you are best served by having it drafted or at least reviewed by a competent local real estate attorney who is up to date on the latest contract language.

Harvey S. Jacobs is a partner in the Rockville law firm of Joseph, Greenwald & Laake, P.A. He is an active real estate investor, developer, landlord, settlement lawyer and lender. This column is not legal advice and should not be acted upon until legal counsel has been consulted. Jacobs can be reached at hjacobs@jgllaw.com.

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