The Changes
- The Purchase Price and Method of Payment:
The purchase price of the property and the method of payment are now separate paragraphs. The purchase price paragraph only states the agreed upon purchase price of the property. The method of Payment will be reviewed herein.
2. Date of Closing and Transfer of Possession (Right to Unilaterally Extend the Closing Date):
The 2006 contract provided a right for either party to extend the closing for up to seven days if the loan the buyer was seeking to obtain was unable to close by the agreed upon closing date or the seller failed to satisfy valid title objections. The 2007 GAR contract has modified this paragraph to state:
"In the event Seller fails to satisfy valid title objections or the closing attorney or Buyer's mortgage lender (including in "all cash" transactions) fail to complete their repective obligations, then the Buyer or Seller, may by unilateral notice to the other party (which notice must be received on or before the closing date) extend the closing date for 7 days or such shorter period as may be agreed to by the parties in writing".
By adding the additional language to include the closing attorney's or mortgage lender's obligations, the Buyer's right to unilaterally extend the contract has been narrowed to avoid those situations where the extension of the closing date is a result of the buyer's failure to perform their duties to obtain the loan.
Once the unilateral extension is exercised by either party, the right then expires. This language provides the right to either party to extend the contract for 7 days or another shorter period as the parties agree to in writing. It is important to note that this extension right must be exercised in writing prior to or on the date of the agreed upon closing date. It is not automatic extension and must be exercised.
3. Seller's Contributions at Closing:
The amount agreed to by the buyer and seller for the seller to contribute towards the costs to the buyer to close the transaction or obtain the loan is now a separate paragraph set apart from the financing paragraph used in the 2006 contract. By separating this paragraph from the financing portion of the contract, the confusion as to whether the seller pays closing costs in cash transactions is removed.
4. Method of Payment
This change may be one of the most controversial changes made to the new contract.
A. Purchase Subject to Financing contingency:
The 2006 Contract, afforded the buyer the right to obtain financing approval, anytime, prior to closing. The 2007 Contract now forces the parties to agree to a date by which the buyer must obtain loan approval.
"Buyer shall have _____ days from Binding Agreement Date ("Financing Contingency Period") to determine if Buyer has the ability to obtain the Loan(s)".
By adding the language to the contract, the buyer is contractually obligated to obtain financing approval by the date stipulated in the contract. As further described in this portion of the contract, the buyer's failure to perform this obligation may further obligate the buyer to the contract once the financing contingency period has expired.
The 2007 GAR contract states:
"The term "ability to obtain" as used herein shall mean that Buyer, as of the end of the Financing Contingency Period, is qualified to obtain the Loan(s) described above based upon the Lender's customary and standard underwriting criteria. If buyer does not have the ability to obtain either or both of the Loan(s) described above, Buyer shall cause a letter from the lender denying either of the Loans(s) to be delivered to Seller prior to the end of the Financing Contingency Period setting forth the Loan(s) described above for which Buyer applied and all of the reasons why Buyer does not have the ability to obtain said Loan(s)."
This places an obligation on the Buyer to obtain a letter of approval or denial from the lender within a specified period of time. The financing contingency is removed and the transaction is deemed "all cash" if (1) the buyer fails to provide the letter of denial to the seller within the Financing Contingency Period or (2) if the buyer delivers the letter required herein but the reason the buyer does not have the ability to obtain the loan is that the buyer:
•a) lack sufficient funds
•b) buyer is required to lease or sell other property as a condition of the loan; or
•c) buyer did not timely provide lender with the necessary information required by lender to determine the buyer's ability to obtain the loan.
It is important to understand how to best represent your client in this part of the negotiation. If you are a Buyer's agent (the selling agent) you want to either use the date of closing or a date close to the date of closing to provide your Buyer more time to get the loan financing. This would best protect your buyer from serious potential problems if a lender approves the loan during the financing contingency period and later denies the loan. However, if you are representing the seller (the listing agent) you want a date closer to the Binding Agreement Date to prevent your Seller from expending funds unnecessarily on repairs, moving, or delaying another legitimate buyer from purchasing the property.
It is also important to understand how this part of the contract correlates with the refund of earnest money deposits. For example, a Buyer is not entitled to a refund of earnest money if the buyer's letter of denial is based on lack of funds to close. It is important that the buyer understand their financial obligations when negotiating a contract.
B. Mortgage Options:
This portion of the contract has added the option for the Buyer to set out the source of the loan, whether an Institutional Lender, Seller financing, or "other"
C. Second Mortgage Options:
This second mortgage information is now listed directly in the body of the contract as opposed to the 2006 Contract which attached Second mortgage financing as an exhibit.
5. Closing Attorney
The closing attorney in the state of Georgia represents the mortgage lender at closing. The 2007 contract has sought to also define what party the closing attorney represents in a cash transaction. It further provides that if the attorney declines to represent the selected party, that party may select another closing attorney.
6. Inspection
It is the responsibility of the buyer to inspect and know of any issues regarding neighborhood conditions. The 2007 contract has expanded this duty to include the following conditions:
"Land-fills, quarries, high voltage power lines, cemeteries, airports, prisons, stadiums, odor producing factories, crime, schools serving the property, political jurisdiction maps and land use and transportation maps and plans."
7. Termites and "Defects"
It is now the responsibility of the Buyer to have the subject property inspected for termites. In the past, it was the responsibility of the buyer to provide well tests or septic system certifications when required by the lender unless otherwise agreed to by the parties for the seller to provide such letters. The 2007 GAR contract has sought to treat termites in much the same way, therefore making this a buyer requirement.
Keeping in mind that this could potentially put a monetary hardship on the buyer to resolve an issue with the home that was unforeseen, the 2007 GAR contract has expanded the definition of "defect" to include "any infestation by termites, insects or other wood destroying organisms" and further states that where a product is not in good and working order and repair to include "damage caused by termites, infiltrating pests, and any other wood destroying organisms." This assures the buyer the right to request the seller to have an active infestation or damage caused by the above to be repaired.
Although many lenders no longer require termite letters as part of the loan process, termite letters may be required when
•a) an appraiser indicates one is necessary because of possible visual infestation and or damage;
•b) the contract contains a specific provision for a termite letter to be obtained or provided; or
•c) the specific lender/loan requires a termite inspection.
This will undoubtedly require the buyer to know what the requirements of their lender are for the loan they are seeking to obtain. This is necessary to insure the right of the buyer to request repairs for termite infestation is addressed within the proper timelines.
8. Due Diligence Period and the Right to Terminate
The 2006 contract provided an option for a Right to Terminate Period. This was renamed in the 2007 contract as Due Diligence Period. By selecting this option, the parties now must also acknowledge or disclose whether the buyer is or is not under contract to purchase other property and whether the buyer shall have the right to enter into other contracts to purchase property during this time period. In previous contracts the buyer warranted that they were neither under any other contracts to purchase property nor would enter into any other contracts to purchase property during the right to terminate period.
If you are representing the seller, it is important to know whether the buyer is under contract for more than one property and whether they have the right to enter into contracts for another property.
** A buyer that is unable to obtain a letter of denial in writing from a lender would still be able to terminate contract if they have selected Due Diligence Period and their time to terminate has not passed.
9. Waiver of Rights Regarding Lead-Based Paint
The 2007 GAR contract now includes an express waiver of buyers right under federal law "to inspect and test for lead-based paint and/or lead-based paint hazards and to not be obligated under this agreement for at least 10 days from the Binding Agreement Date". This change treats lead-based paint and/or hazards like other adverse property conditions that the buyer can address during the due diligence period or during the right to request repairs.
10. Title and Surveys
The 2007 GAR contract now includes the cost of repairing the deed of conveyance and owner's affidavit as a closing cost. This makes these fees, if charged, part of the buyer's costs for closing and will not be a cost to the seller, above or in addition to, any fees the seller has agreed to pay in closing costs for the buyer. The survey section of the contract now requires the parties to the transaction to state whether a survey of the property is or is not attached to the contract.
11. Notice by email
Email has now been added as a means of giving notice, if the email address is provided in the contact information on the signature page of the contract even where the agent may know the email address of the other agent. This section has also been revised to use either the broker or agent (licensee) email or fax number.
12. Misc. Changes
- All references in time shall mean the time in Georgia (paragraph 19 (e))
- Entitlement to earnest money is now separated from the receipt of earnest money section (paragraphs 3 & 15)
- The prorating of Taxes, utilities and Homeowner's association dues are now set out in paragraph 13.
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