Summary of 2008 Changes
GAR made a
number of form changes for 2008.
Click here to view a Jan 1,
2008 Changes.
Click here to view a Jan
30, 2008 Changes.
Summary of March 2007 Changes
GAR made a
number of minor form changes from January 17, 2007 through March 9, 2007.
Click here to view a cumulative list
of the changes made during that time.
Summary of January 1, 2007 Changes
The 2007 GAR Purchase and Sale Agreement -
Georgia Association of Realtors - GAR Forms
There are more significant changes in this year’s contract than in previous
releases. This article will review these changes and explain why the GAR Forms
Committee decided to make them to the real estate forms..
1. New Organization to GAR
Contract.
The GAR Purchase and Sale
Agreement has been reorganized so that most of the significant deal points are
on the first page of the Agreement. The purchase price, the amount of the
earnest money, the date of the closing, the seller’s contributions at closing
and the method of payment are all now on the first page of the Agreement. This
should make it easier for REALTORS using the GAR Purchase and Sale Agreement to
immediately see and understand the important terms of any offer being
presented.
2. Changes to Earnest
Money Section.
The earnest money section of the GAR Purchase and Sale Agreement was divided
into two sections in the new Purchase and Sale Agreement. The first deals with
the amount and deposit of earnest money (paragraph 3). The second deals with
the entitlement to and disbursement of earnest money (new paragraph 15). Other
than breaking the old section into two sections, the earnest money paragraph was
not changed.
3. Right to Unilaterally
Extend Closing Date Modified.
In earlier versions of the GAR Purchase and Sale Agreement, either the buyer or
seller could unilaterally extend the closing date if there was a problem with
either the title or the loan. In the new contract, the closing date can be
unilaterally extended by the buyer or seller if there are either title problems
or the closing attorney or buyer’s mortgage lender (including in “all cash”
transactions) fail to timely complete their respective obligations. The idea
behind this change was to narrow somewhat the type of loan problem that can be
used to extend the closing date more to situations where the delay was the
result of a problem with the lender or closing attorney rather than the
borrower.
In addition, the right
to extend the closing date in the new contract expires once it is exercised.
Therefore, the new language provides that “exercise of this right by either
party shall cause the unilateral right to extend the closing date to terminate
and no longer be a part of this Agreement”. To ensure that the parties
have a full seven (7) days to resolve any problems caused by the exercise of the
right to extend the contract, the extension period is set at “seven (7) days or
such shorter period as may be agreed to by the parties in writing”. In
this way, while the parties can mutually agree on a shorter time frame, neither
party can cut off the other party’s right to extend the contract by exercising
it first for a short period of time (for example, for one day).
4. Seller’s Contributions
at Closing.
In the old version of the GAR Purchase and Sale Agreement, the Seller’s
Contributions at Closing section was a subparagraph of the financing
contingency. As such there was no place for a seller to make a contribution
towards closing costs in an all cash transaction. This was changed in the new
contract by making the Seller’s Contributions at Closing paragraph its own stand
alone section. As a result, the seller can now make a contribution to the
closing cost in both “all cash” transactions and transactions in which the buyer
is obtaining mortgage financing.
5. Method of Payment.
The most significant change in the GAR Purchase and Sale Agreement was to the
Method of Payment section. Under the old version of the GAR contract, the buyer
had up until the date of closing to be approved for any loan to which the
agreement was subject. This approach created numerous problems for sellers and
REALTORS® when buyers who were initially pre-qualified or approved
for a loan found out shortly before closing that the loan had been denied.
The consequences of
buyers not obtaining or losing their financing fell squarely on the shoulders of
the sellers under the old contract. This is because while the buyer
received back his or her earnest money, the seller was often saddled with
thousands of dollars of unrecoverable costs to pack up and move his or her home
and/or purchase another property.
In an effort to solve this
problem, the GAR Forms Committee modified the financing contingency so that the
buyer now has a negotiated period of time, referred to as a Financing
Contingency Period, to determine if he or she has the ability to obtain the loan(s) described in the contract. If the buyer does not have the ability to
obtain the loan(s), the buyer must present to the seller a letter of loan denial
(setting forth all of the reasons why the loan was denied) prior to the end of
the Financing Contingency Period. If the buyer does not provide the seller with
the required letter of loan denial, the loan is deemed approved and the
financing contingency is removed from the contract.
This approach is
similar to what many builder contracts already provide. While it should
improve life immensely for sellers, it will definitely create some new issues
for buyers. For example, if a lender verbally denies the loan but fails to
timely provide the required letter of loan denial, the buyer is deemed to have
the ability to obtain the loan. Similarly, if the lender neither approves
nor denies the loan during the Financing Contingency Period pending the receipt
of additional information from the buyer, the buyer is deemed to have the
ability to obtain the loan and the financing contingency is terminated.
Finally, if the lender approves the loan during the Financing Contingency Period
but later denies the loan, the buyer will now be in breach of contract if the
buyer fails to close on the purchase of the property.
Clearly, the new
language creates significant disincentives for buyers to pursue mortgage
financing from anyone other than a reputable mortgage lender. More than
ever, buyer will need to work with lenders who deliver on their promises.
More buyers will also likely start the loan approval process before they ever
sign a contract to ensure that they know whether or not they can afford a
property. Buyers are also likely to try to negotiate longer Financing
Contingency Periods so that they have enough time to get letters of loan denial
should that become necessary. For that matter, a buyer can effectively
give themselves the same protection they have now by having the Financing
Contingency Date expire on the date of closing.
Smart buyers will also
likely select a Due Diligence Period in Paragraph 10 of the new contract that is
equal to or longer than the Financing Contingency Period. In this way, if
the buyer cannot get a needed letter of loan denial, the buyer can simply
terminate the contract under the Due Diligence section of the contract. In
many respects, the buyer does not need a financing contingency at all so long as
the buyer has a due diligence period of sufficient length for the buyer to
arrange for financing and do all necessary inspections.
Under the new financing
contingency, the buyer is also not required to apply for a loan within a
specific time frame, or for that matter, at all. This is because if the
buyer does not produce a letter of loan denial, the buyer is deemed to have the
ability to obtain the loan.
One point which should
be emphasized is that just because the buyer is denied the loan within the
Financing Contingency Period, does not necessarily mean that they buyer
automatically gets back his or her earnest money. So, for example, if the
basis for the loan denial is that the buyer lacks sufficient funds to close, the
buyer would be in breach of the provision in the GAR contract because the buyer
warranted that he or she had sufficient funds to close. In such a
situation, the buyer would not be entitled to a return of his or her earnest
money. This concept did not change from previous versions of the GAR
contract.
The other major change
to the financing contingency is that the contract now includes a place for the
buyer to describe both a first and second mortgage being sought by the buyer.
This change was made to reflect the growing reality that more buyers are seeking
both first and second mortgages in order to purchase real property. The
buyers’ ability to obtain a loan is then tied to whether he can obtain all of
the loans described in the contract.
6. Closing Attorney
Section.
The closing attorney section of the GAR Purchase and Sale Agreement was modified
so that the parties can negotiate the selection of a closing attorney in both
“all cash” transactions and transactions in which the buyer is seeking mortgage
financing. The revised closing attorney section also includes a disclaimer that
the closing attorney is representing the lender in a closing in which the buyer
is seeking mortgage financing. Finally, this section of the GAR contract now
includes a check box for the parties to negotiate who the closing attorney will
represent in an “all cash” transaction.
7. Revised Inspection
Section.
The inspection section has now been broken into three categories. In addition
to the buyer’s traditional right to inspect the property, a new section has been
added imposing a duty on the buyer to inspect the neighborhood. This section
includes an acknowledgement by the buyer that he or she has had the opportunity
to become acquainted with neighborhood conditions which could affect the
property including such things as landfills, quarries, high voltage power lines,
cemeteries, airports, prisons, stadiums, odor producing factories and crime.
8. Termite Inspection Is
Now The Responsibility Of Buyer.
The other major change made to the GAR Purchase and Sale Agreement was to shift
the responsibility for inspecting for termites and obtaining any Official
Georgia Wood Infestation Report from the seller to the buyer. Termites are now
treated like any other condition in the property for which the buyer has a right
to inspect. The seller no longer has an obligation to provide the buyer with an
Official Georgia Wood Infestation Report at the closing indicating that the
property is free of any evidence of active infestation from termites and other
wood destroying organisms. Instead, the contract now provides that “buyer shall
be solely responsible for inspecting for any wood destroying organisms and
obtaining an Official Georgia Wood Infestation Report that may be of interest to
buyer or required by buyer’s mortgage lenders.” Buyers should therefore
immediately determine if their mortgage lender will be requiring a “clean”
Official Georgia Wood Infestation Report at closing. Similarly, just as the
buyer normally arranges for a home inspection as soon as a property is put under
contract, the buyer should now be encouraged to also arrange for a termite
inspection of the property. If the inspection reveals termite infestation or
damage, the buyer can, depending on the repair option selected by the buyer,
request that it be treated or repaired. So, for example, if the contract
provides for a due diligence period, and termites are discovered during the due
diligence period, the buyer can seek to have the seller treat the same by timely
submitting to the seller the GAR Amendment to Address Concern with Property
form. Similarly, if the “Property Sold With Right to Request Repairs” section
marked, the buyer can request that termite damage be treated and/or repaired as
a Defect in the property. The term “Defects” in this section has been revised
in the GAR contract to specifically include infestation and damage from termites
and other wood destroying organisms.
9. Due Diligence Period.
The Right to Terminate Period in the former GAR contract was renamed a “Due
Diligence Period” in the new contract to make it consistent with the GAR
Commercial Purchase and Sale Agreement (which uses that reference). This
section also now includes a check-box where the buyer can warrant whether or not
he or she has: a) other property under contract and b) the right to enter into
other purchase contracts during the Due Diligence Period.
10. Lead-Based Paint
Section Modified.
Another major change to the GAR Purchase and Sale Agreement was in the area
of lead-based paint. The previous GAR contract provided that the buyer would
have a period of not less than 10 days during which the buyer could inspect for
lead-based paint and lead-based paint hazards. This provision was somewhat
confusing because the inspection right was not accompanied by a corresponding
right to request repairs if lead-based paint or lead-based paint hazards were
discovered. The new GAR Purchase and Sale Agreement includes an express waiver
of all of the buyer’s rights under federal law to test for lead-based paint
and/or lead-based paint hazards for 10 days from the binding agreement date and
not be obligated under any purchase contract during this time period. Instead,
lead-based paint and/or lead based paint hazards are treated like any other
potentially adverse property condition that the buyer can address to the extent
and for the length of time of any due diligence period or right to request
repairs negotiated into the contract by the buyer.
The Seller’s Property
Disclosure Statement was also modified to eliminate the lead-based paint
disclosures required under feral law. These disclosures are now provided
in an exhibit that must be attached to all contracts where the property was
constructed prior to 1978. The Seller’s Property Disclosure Statement
continues to include a question on whether the property was constructed prior to
1978. If the answer to this question is “yes” or “don’t know” the seller
is instructed to attach a Lead-Based Paint Exhibit to the contract in which the
appropriate disclosures are made.
11. Title
Two changes were made to the
Title section (Paragraph 12) of the GAR Purchase and Sale Agreement that are
worth noting. First, there is now a checkbox for the parties to indicate
whether or not a survey is attached. Earlier versions of the GAR contract
merely provided that, “If a survey is attached…” making it somewhat unclear from
the face of the contract whether or not a survey was actually attached.
The second change was
made in the Warranty of Title section, where the following sentence was added to
the contract, “The deed of conveyance and owner’s affidavit in this transaction
shall be prepared by the closing attorney referenced herein and the cost thereof
shall be treated as a closing cost.” In many parts of Georgia,
particularly outside of the metro Atlanta area, closing attorneys charge the
seller a separate fee for the preparation of the deed of conveyance and owner’s
affidavit. By making the cost of preparing these items a closing cost, the
seller will not be responsible for the cost of preparing these items above and
beyond the amount of the seller’s contributions at closing.
12. New Disclosure Added
Regarding GAR Forms
A new disclosure has been
added to all major GAR Forms to protect GAR from possible claims from users of
the forms that they did not in some way meet their needs. The new disclaimer
states that the forms are provided “as a courtesy to the parties”. It goes on
to state that the forms are “not required to be used in any transaction, [and]
may not fit the needs, goals and purposes of the parties…” This disclaimer
language should hopefully make it clear that GAR is not guaranteeing the
appropriateness of the forms in every (or for that matter any) real estate
transaction. The disclaimer also provides that while the GAR forms can be
altered or modified by the parties to a real estate transaction, at their own
risk, the form “may not be reproduced with sections removed, altered or modified
unless the changes are visible on the form itself or in a stipulation addendum
exhibit or amendment thereto”. This change was made to try to make it clear
that parties are not allowed to excise provisions from the GAR contract and then
reproduce the form where the excised area might not be readily apparent to other
parties using the form.
13. Miscellaneous Changes
Several changes were made to
the GAR Purchase and Sale Agreement to address minor but occasionally
frustrating situations. So, for example, a reference was added in paragraph
19(e) that “all references to time shall mean the time in Georgia”. This change
was meant to eliminate any debate over which time applied when a party is
temporarily located in a different time zone when some obligation under the
contract is to be performed. Language was added to paragraph 19(h) that filling
in the binding agreement date shall not be deemed a counteroffer.
14. Notice Section
Changes were also made to the notice section of the GAR Purchase and Sale
Agreement. Specifically, e-mail was added as an acceptable means of giving
notice. However, notice may only be sent by e-mail (and for that matter by FAX)
to a listing or selling broker to the extent that a FAX number or e-mail address
is provided in a contact information section that is part of the signature page
of the GAR contract. If no FAX number or e-mail address is provided, then
notice by that means is not permitted. So, for example, let’s assume that the
selling broker knows the e-mail address of the listing broker, but the listing
broker does not include his or her e-mail address on the signature page of the
contract. In such an event, notice may not be sent to the listing broker by
e-mail.
The “contact
information section” is also now for the “listing broker/licensee” and the
“selling broker/licensee”. Whether the FAX number or e-mail address of the
broker or licensee of the broker is included is a matter for the parties to
decide for themselves. This is different than in earlier versions of the
contract where only the broker’s FAX number could be used in the contract.
Conclusion
Changes are continually being
made to the GAR Forms to try to protect REALTORS®, fairly balance the
rights of buyers and sellers and eliminate issues that could derail real estate
transactions. Hopefully, the new GAR Purchase and Sale Agreement accomplishes
these goals.
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Summary of GAR Form Changes
