The regional sales contract in the Northern Virginia real estate market is changing January 1, 2012. There are two BIG changes in it, both designed to help "protect" sellers, which I think will ultimately harm them because more buyers will walk away from contracts if sellers refuse to fix deficiencies. I have written about this before - "What is Normal Anyway?" Today I will again focus on the major changes to Paragraph 7.
Paragraph 7 is has been stripped down to the bone. Nothing has to be in "normal working order" anymore, and buyers choose as of "contract date,""inspection date," or "other" that they will take the house in that condition. The seller is not obligated to make sure anything works. So the only protection the buyer now has is the "void" option in the home inspection contingency. This has always been the case, except now the seller does warrant that some basic systems will work.
As of now, until December 31, 2011, the same paragraph reads all "heating, cooling, appliances, plumbing and electrical" must be in "normal working order." The brain trust at NVAR and GCAAR who made the change felt it was causing too much confusion as to what "normal" means, and causing too much trouble for sellers to make all of these repairs, so they ripped the whole thing out. They also felt buyers had too much weight in the contract, and wanted to give the seller more protection.
If you choose "inspection date" and find that things are broken in the inspection, the seller is not obligated to fix them, and again, your leverage is in the home inspection contingency and the threat of "walking away" or voiding the contract within the contingency deadline. If you choose "contract date" how do you prove the condition on that date? It will become a game of he said she said or pre-contract inspections.
I think they have replaced one piece of complicated language with another set of complicated scenarios that will cause more problems than haggling over what "normal" means ever did. And this does not even touch the changes to the financing contingency, but that is for another blog.
So what's a Northern Virginia Home Buyer in 2012 to do? Well first of all, make sure your Realtor knows the new contract. Second of all, get a really good home inspection with a very good report. Home Inspections are now going to be more like "study periods" to find out if the home is in acceptable condition. If you find out it is not, your recourse is to ask the seller to fix it or you will walk away. Again, this is not drastically different when it comes to things like the roof, wet basements, decks, siding, paint, walls, wood, tiles, flooring and dozens of other parts of the house that were not covered in paragraph 7. But it does change that obligation from the seller to have plumbing, heating, cooling, electrical and appliances working, which let's admit, gives a great peace of mind to the buyer that the house is not going to become unlivable and a money pit upon move-in.
One exclusive buyer's agent mentioned that it was similar to making all houses sell in the same condition as a foreclosure. That is a perspective it seems no one on this committee thought of when they made these changes.
"Buyer Beware" is more true than ever before in Northern Virginia home buying. But I think this could possibly ultimately harm sellers too, if not managed correctly by the listing agent. Sellers should not feel emboldened by this change to shun requests for repairs. There is little desparation among buyers to purchase a home right now. The housing market crash left a very negative impression, and few buyers will over pay for a home these days, even here in Northern Virginia, where the market is strong compared to most of the rest of the country.
With interest rates are at historic lows, as well as inventory levels, we should have a market with heavy buyer activity, multiple offers and price escalation, but that is not the case (read here for the latest market stats). If buyers are scared to buy houses, that is ultimately going to be bad for sellers. If you are thinking of selling your home in Northern Virginia in 2012, don't think this makes every contract a slam dunk for you. Buyers will walk away based on inspections if you don't convey the house in proper, working condition that reflects the strong prices we have here.
If you are thinking of buying a home in Northern Virgina, give me a call. I am a staunch advocate for both my buyers and sellers, and know the contract well and how to lead each party through the various complications set forth in the current contract and the new one in January, 2012.
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