Tim Savoy, a real estate agent with Coldwell Banker Residential Brokerage in Dupont Circle, writes an occasional column about the Washington-area housing market.
Fall is ushering in big changes for anyone buying and selling a house, requiring consumers, real estate agents and others to get accustomed to new forms and procedures. Local real estate transactions will now be governed by a new sales contract, and settlements will be governed by sweeping new federal regulations.
Last week, the standard contract for sale of real estate in the District, Maryland and Virginia officially changed. This new contract is about 99 percent similar to the old contract, but now only includes the jurisdictions of Maryland and Washington.
Virginia seceded from the regional sales contract in July. Overall, the regional contract for Maryland and D.C. has small tweaks to clarify points missing from the previous contract. For example, a percentage rather than a whole number is now used to denote financing, and the number of days buyers must turn in their earnest money is now stated outright. These small changes have been made to clarify the terms between the buyer and the seller.
The implications of this new contract are minor, but all consumers in the market need to be sure to use the Oct. 1 sales contract and disclosures for any listings or offers made on property with a real estate agent from now on.
While the move to the new sales contract has been relatively smooth, the transition to the new settlement law has been a bit rough.
Let’s be honest, even saying the integration of the Real Estate Settlement Procedures Act with the Truth in Lending Act to form the TILA-RESPA Integrated Disclosure, or TRID, sounds like a headache. If you aren’t already under contract for a home or hadn’t applied for a loan by Saturday, these new rules and regulations apply.
Over the past month, the mechanics of these guidelines have been laid out, with 80 percent of Realtors having been trained nationwide. Practically speaking, how should our market respond to these changes?
Here are some key takeaways:
• Keep calm and carry on: We have known that these changes were coming for quite some time. The law was meant to take effect in August, but was delayed until October. Good news, even if just logistically, is that the winter is a slow point for the D.C. area real estate market. This will give the lender more time to adjust to the new guidelines with less business being conducted.
• Say goodbye to the HUD-1: Even if you are a seasoned buyer, there will be a learning curve to your next purchase or sale. Any loans originated from now on will be subject to the new Closing Disclosure and Loan Estimate forms. Buyers who want to understand their loan and purchase should not review the old HUD-1 and Good Faith Estimate Statement (GFE) as these will significantly change with the Closing Disclosure and Loan Estimate.
• Plan to be realistic: If you decide to make an offer on a home, don’t create unrealistic expectations if you must apply for a loan. Even if your financing is solid, the time to close is expected to be 45 days from the date of contract ratification. For buyers, keep this in consideration even if you plan to make an offer without a financing contingency. Realistically, this will make cash offers with shorter closes even more attractive to a seller, but sellers who accept an offer with conventional financing should anticipate a 45-day close regardless of the offer submitted to them.
• Do not expect exceptions: Lenders are now required to give a three-day review period after the final loan has been approved; there are absolutely zero exceptions to this rule. Whereas minor changes could be made to the HUD-1 at the closing table, the law now requires a three-day review period before a closing can occur. So what does this all mean for the buyer? Quite simply, comply with the lender’s requirements as soon as possible and provide all of the information they need in as timely a manner as possible.
• Penalties for noncompliant lenders: These new rules are in place to protect the buyer. If the lender does not follow the new guidelines, it can face thousands of dollars in fines from the Consumer Financial Protection Bureau (CFPB). Instead of working against the lender trying to close the loan as fast as possible, buyers and seller should understand why these new regulations are in place.
For now, buyers, sellers and real estate professionals need to be on their toes as these changes are unveiled all at once.
While these changes may create a momentary lengthening in the purchasing process, many real estate experts believe that the market will naturally adjust to these changes by closing the gap in settlement time over the next several months.
Until the new procedures become routine, the key word is patience.
Catch up on some of Tim’s previous columns:
Tim Savoy can be reached at Timothy.Savoy@cbmove.com.