Effective January 17, 2007, a very significant change was made to the Purchase and Sale Agreement (sales contract) and if you are a potential home buyer or seller anywhere in the state of Georgia, you need to be very much aware the change! The change will benefit sellers and introduces an element of risk to some buyers if they do not have a pre-approval and commitment for their financing. In the past, the sales contract was contingent on the buyer's ability to obtain financing. At anytime during the processing of the buyer's loan, right up to the day of closing, if the lender failed to approve and grant the loan, the buyer was entitled to a full refund of his earnest money. The buyer could walk away from the deal, get his earnest money back, and would have totally shut down the seller's marketing of his home for six weeks or longer. This is no longer the case.
With the new contract language, the buyer has ____ days to confirm that he can get the financing he needs. The blank is a negotiable number of days, but agents are expecting that it will most often be filled in with the number 10. If during that 10-day period, the buyer's first mortgage loan and/or second mortgage loan is denied, the buyer must present a letter of declination to the seller before the 10 days have elapsed. Only then does the buyer get his earnest money back. If the lender decides after the 10th day to decline the loan, and the buyer has no other source of financing and is unable to close, the seller will be awarded the buyer's earnest money.
For sellers, this new contract language is a very good thing. If a contract is going to fail due to the buyer's inability to obtain financing and this is ascertained within the 10-day period, the seller only loses the 10 days that his home has been off the market. Previously, the seller could lose as much as 45 days of market time, sometimes even longer. And, now, if the buyer doesn't timely report his being turned down for his loan and cannot close the transaction, the seller gets the earnest money as liquidated damages. As a consequence, real estate agents should find that they are showing homes to better qualified buyers than in the past.
For buyers, this new contract language presents a risk they did not previously have. A buyer must now select his lender with greater care. The buyer must be certain that he has chosen a lender who will commit to making the loan within that 10-day window. The buyer must be certain he has not chosen a fly-by-night lender who won't deliver on the loan at some point after the 10-day period has passed. Buyers now should really get themselves "pre-approved" for their loan before beginning to shop for a home. The lender's pre-approval should be in writing with the only conditions being that the loan is contingent on a satisfactory appraisal and the submission of a valid sales contract. The days of a buyer's making a offer on a home based on the his "pre-qualification" or his good looks are gone!
So as not to leave anything out, let me paste below a key paragraph taken from the revised contract:
Buyer shall be deemed to have the ability to obtain the Loan(s), this Agreement shall thereafter no longer be subject to any financing contingency and the method of payment shall thereafter be deemed to be "all cash" if either: a) Buyer does not deliver the above-referenced letter to the Seller within the time frame set forth above, or b) Buyer delivers the above-referenced letter but the basis upon which Buyer does not have the ability to obtain the Loan(s) is that Buyer: (1) lacks sufficient funds to close; (2) is required to lease or sell other property as a condition of obtaining the Loan(s); or (3) did not timely provide the lender(s) with needed information to evaluate whether Buyer had the ability to obtain the Loan(s). Buyer shall not intentionally make any material changes in Buyer's financial condition which would adversely affect Buyer's ability to obtain the Loan(s) during Financing Contingency Period. Buyer shall be responsible for obtaining and providing to lender(s) all required loan documentation, Official Georgia Wood Infestation Report, structural letter, well tests, septic system certifications, flood plain certifications and any other similar information
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