Monday, December 19, 2011
I’m very pleased that the Washington Post has taken an
interest in the small details of the real estate market that can affect the
sale of a home. I read Mr. Jacobs opinion piece with interest, but had some
concerns with the accuracy, completeness and slant taken in his writings. Here
is a portion of the concerns that I have with his article, taken paragraph by
paragraph:
Paragraph 1:
“The Greater Capital Area Association of Realtors (GCAAR) has just issued revised residential real estate sales contract forms [Regional Sales Contract or “RSC”] that make sweeping changes to the way business has been conducted in the region.”
“The Greater Capital Area Association of Realtors (GCAAR) has just issued revised residential real estate sales contract forms [Regional Sales Contract or “RSC”] that make sweeping changes to the way business has been conducted in the region.”
1.
There are no “sweeping changes to the way
business has been conducted” in our region. There are no state law changes,
there are no changes to the way settlements take place, the way inspections are
handled, the multiple listing service, advertising, fiduciary relationships
between agents and their clients, interest rates, disclosure requirements or
any other fundamental aspects to the sale of real estate. Mr. Jacobs is
referring to changes in less than 50 paragraphs in a library of forms that are
in excess of 100 pages long.
2.
GCAAR does not have the ability to revise the
RSC unilaterally, it is part of a group of associations that created and
updates the RSC as needed. GCAAR’s forms will only affect the manner in which
real estate is conducted in Montgomery County Maryland and the District of
Columbia. While that is a portion of the business in the Washington real estate
market it is hardly “the region.” The RSC will also be used by the Northern
Virginia Association of Realtors (NVAR). NVAR covers Arlington, Alexandria,
Falls Church and Fairfax Counties. Combined with GCAAR these two associations
do comprise a large portion of the Washington market, but does not include
Prince Georges, Loudon, Howard, Prince William or Charles counties.
3.
The RSC is created for Realtors use only. While
most people believe that Realtor and “real estate sales person” are
interchangeable, they are not. In order to be a Realtor you must be a member of
the National Association of Realtors and only approximately 1/3 of the
licensees in the United States are Realtors. Thus, only 1/3 of licensees are
eligible to use the RSC.
“These forms, which become effective Jan. 1, affect real estate transactions in Maryland, the District and to a lesser extent, Northern Virginia. Everyone planning to be involved in the local real estate scene in the new year should read and understand these new forms thoroughly before proceeding.”
1.
The changes do not affect real estate
transactions in the entire state of Maryland. In fact, these changes can only
affect changes in 1 out of 24 counties in the state. Further, the buyers in the
single county have the option to use the “MAR Contract” instead of the Regional
so there is not necessarily any change for buyers from this contract in the
Maryland. In direct contradiction to what is stated in the article, the form is
more widely used in Virginia than it will be in Maryland. In fact, the form
will be used in Arlington, Alexandria, Falls Church and Fairfax.
2.
The local associations of Realtors have been offering
extensive classes on these forms as have the local settlement attorneys. The
brokerages that do work in these jurisdictions have also had extensive training
on these forms. So this concern has already been addressed.
“For many years, these standardized forms were basically designed to protect real estate agents and keep them out of trouble. Despite their historically self-serving nature, these forms tended to be quite fair and balanced to buyers and sellers alike. The current changes, however, seem to have tilted the playing field more toward the seller.”
1.
The purpose and design of these forms is to
facilitate real estate transactions. They are not designed to “protect real
estate agents and keep them out of trouble.” That is unless, you believe that
obeying the law is only done to “protect agents and keep them out of trouble.” Maryland,
Virginia and District of Columbia law require licensed real estate agents use forms created by attorneys which is precisely why
these forms were created. So, indeed, these forms are self-serving in that they
allow Realtors to comply with the law.
2.
Ironically, the forms were modified in order to
help buyers have a more balanced transaction. The previous versions of the
forms provided that the seller would warrant all electrical, heating/cooling,
plumbing, appliance and smoke detector systems in a home. Because only those
systems were warranted sellers felt that they were not obligated to fix any
issues that were not in this group. This led to situations where a buyer would
ask for a light to be fixed in an oven and the seller was obligated to fix it, but
the crack in the foundation of a house was not being addressed. In order to do
away with any preconceptions about what should or should not be fixed, the forms
were changed to allow the buyer and seller to negotiate ALL aspects of the home
inspection without making one item more important than another. The new form
allows all inspections and repairs to be made, just the same as they were in
the previous version of the form.
3.
The Realtor associations represent both buyers
and sellers and attempt to create contracts that are balanced because agents can represent either side of a transaction. There is no
incentive for the associations to create unbalanced forms because they would
only be hurting themselves.
Paragraph 4:
Paragraph 4:
“Starting in January, all properties being sold using the new forms are being
sold as is. What this means is that unless buyers insert inspection contingency
clauses or seller’s property condition representations into their contracts,
the buyers will have no protection if the home is later discovered to have
unacceptable or even defective, unsafe or unsanitary structural damage or
components.”
1. It does not matter what contract is used to purchase
real estate, if there is no home inspection there will be no way to determine
what the condition of the home is. This holds true with the current contract,
the proposed contract or a contract written by an attorney.
Paragraph 5:
“Sellers will not be liable for conveying defective or even non-working plumbing, heating, ventilation, air conditioning and other systems. The seller’s sole responsibility is to deliver the property “free and clear of trash and debris, broom clean and in substantially the same physical condition as determined” on contract date, date of home inspection or other agreed-upon date. Gone are the days when buyers could rely on the seller’s express written warranty that all systems are in good working order and repair. The seller is not required to make even lender-required repairs in the event that the buyer’s lender requires that repairs be made as a condition of the loan.”
“Sellers will not be liable for conveying defective or even non-working plumbing, heating, ventilation, air conditioning and other systems. The seller’s sole responsibility is to deliver the property “free and clear of trash and debris, broom clean and in substantially the same physical condition as determined” on contract date, date of home inspection or other agreed-upon date. Gone are the days when buyers could rely on the seller’s express written warranty that all systems are in good working order and repair. The seller is not required to make even lender-required repairs in the event that the buyer’s lender requires that repairs be made as a condition of the loan.”
1.
The buyers never could rely on the seller’s
express written warranty that all systems are in good working order and repair.
The current contract did not provide that and the new one does not either.
There were some systems that were warranted to be “normal working order” in the
previous contract but that loose definition was the source of great ambiguity
and dispute and served neither buyers nor sellers interests.
2.
Stating “The Seller is not required to make even
lender-required repairs” is false and misleading. The seller is, in fact, still
required to make lender-required repairs if there is a financing contingency.
The change is that the reference to that requirement has been moved to a
different page of the contract.
Paragraph 6:
“There is, however, some good news for home buyers in that agents also have revised their six-page addendum of clauses to include two mutually exclusive forms of home inspection clauses. The first paragraph, called Home Inspection Contingency, provides the buyer with a right to conduct a home inspection and present the seller with a list of items that the buyer wants the seller to replace or repair.”
“There is, however, some good news for home buyers in that agents also have revised their six-page addendum of clauses to include two mutually exclusive forms of home inspection clauses. The first paragraph, called Home Inspection Contingency, provides the buyer with a right to conduct a home inspection and present the seller with a list of items that the buyer wants the seller to replace or repair.”
1.
Mr. Jacobs says: “agents also have revised,”
which is absolutely inaccurate. The agents do not write or revise the contract.
Attorneys revise the language on the contract.
2.
The two inspection contingencies have always
been in the six-page addendum of clauses. This is not a change.
3.
This particular addendum of clauses is only used
in Montgomery County, Maryland and the District of Columbia. The addenda used
for all other jurisdictions are different. So, changes here only affect a small
portion of the transactions in the region, which again belies the argument that
there are sweeping changes to the region.
Paragraph 7:
“The buyer can also request dollar credit in lieu of repair or replacement of the unsatisfactory inspection item. After receiving a copy of the home inspection report and the buyer’s list of requested repairs, replacements or dollar credits, the seller can opt to make repairs, replacements or provide credits. The seller can decline to make any repairs or concessions, but must notify the buyer of such a decision within three days of receiving the buyer’s inspection report and notice. Failure to provide the three-day notice may deem the seller to have agreed to the buyer’s requests.”
“The buyer can also request dollar credit in lieu of repair or replacement of the unsatisfactory inspection item. After receiving a copy of the home inspection report and the buyer’s list of requested repairs, replacements or dollar credits, the seller can opt to make repairs, replacements or provide credits. The seller can decline to make any repairs or concessions, but must notify the buyer of such a decision within three days of receiving the buyer’s inspection report and notice. Failure to provide the three-day notice may deem the seller to have agreed to the buyer’s requests.”
1.
This is a fairly accurate representation of only
one part of the paragraph Mr. Jacobs is explaining. However, it fails to point
out that if the buyer fails to ask for any repairs the contingency
automatically expires. And that if the seller does respond to the buyers
requests within the three-day period and then the buyer fails to respond the
buyer is deemed to have accepted what the seller has agreed to do. Thus, both
parties must be responsive, neither side can be complacent.
“The other inspection contingency in the second paragraph of the addendum of clauses is called General Inspection Contingency (No Right to Negotiate). As the name implies, this inspection does not give the buyer any right to ask the seller to make any repairs or concessions. The inspections provided for by this clause are for informational purposes only. If the inspection is unsatisfactory to the buyer in his sole and absolute discretion, his only right at that point is to notify the seller that the contract is void and to receive his deposit back.
Under either inspection clause, it is critical that the buyer send his notice to the seller before the stipulated inspection deadline. Failure to meet this deadline will result in the contingency terminating and the contract remaining in full force.”
1. On these two paragraphs Mr. Jacobs is accurately describing the addendum. But it should be noted that the buyer has a choice of contingencies to use. Their agent will help the buyer decide whether the “No Right to Negotiate” is the right choice or not.
Paragraph 9:
“Other notable changes to the real estate sales contract include the financing and appraisal contingencies being removed from the body of the contract into their own separate addenda. Thus, if a buyer wants the benefits of these contingencies, he must make sure that he asks for them. There is no longer a list of possible addenda and contingencies as there was in prior versions of these contracts.”
“Other notable changes to the real estate sales contract include the financing and appraisal contingencies being removed from the body of the contract into their own separate addenda. Thus, if a buyer wants the benefits of these contingencies, he must make sure that he asks for them. There is no longer a list of possible addenda and contingencies as there was in prior versions of these contracts.”
1.
The buyer had to ask for the contingencies to
get their benefits on the old contract and will have to on the new contract as
well.
2.
There are check boxes for the appropriate financing
options in the body of the contract. They are, in fact, on the very first page
of the contract to bring more attention to them for the buyer’s benefit.
Paragraph 10:
“That mini-checklist was useful in informing buyers and sellers that various contingencies were available. Now the burden is on the party preparing the contract to advise everyone that additional pre-printed clauses may be available to protect their interests or that clauses can be drafted from scratch to customize the deal to meet their needs.”
“That mini-checklist was useful in informing buyers and sellers that various contingencies were available. Now the burden is on the party preparing the contract to advise everyone that additional pre-printed clauses may be available to protect their interests or that clauses can be drafted from scratch to customize the deal to meet their needs.”
1.
I agree with Mr. Jacobs that the mini-checklist
was useful in the old version of the Regional Sales Contract. However, it also caused
confusion. Since only some of the contingencies would be appropriate in a
particular transaction buyers would ask for things such as a “Lead-Based Paint
Test” for a home constructed only a year ago, when there was no lead-paint
legally allowed to be used in the United States after 1978. This, in fact,
would have been a detriment to the buyer, not a benefit.
Paragraphs 11 and 12:
“The revised sales contract incorporates specific jurisdictional addenda for D.C., Maryland or Virginia. These jurisdictional addenda, which conform to the new 2012 regional sales contract, address how local items are to be handled, such as grantor’s, transfer, recordation taxes and fees. It is imperative for home buyers and sellers opting for the new forms to use only the most recent editions for their specific jurisdiction. Parties should use the jurisdictional addenda for location of the property, regardless of where they reside.
“The revised sales contract incorporates specific jurisdictional addenda for D.C., Maryland or Virginia. These jurisdictional addenda, which conform to the new 2012 regional sales contract, address how local items are to be handled, such as grantor’s, transfer, recordation taxes and fees. It is imperative for home buyers and sellers opting for the new forms to use only the most recent editions for their specific jurisdiction. Parties should use the jurisdictional addenda for location of the property, regardless of where they reside.
Finally, these new forms are not mandatory and, in fact, are
drafted, copyrighted and designed for GCAAR member use only. While it is
perfectly legal and often desirable to amend these forms using separate
addendum, all jurisdictions have laws prohibiting the unauthorized practice of
law and thus non-lawyers must be cautious when drafting legal contracts for
others.”
1.
Mr. Jacobs is quite right that the appropriate
and current forms should be used when creating a contract. He is also correct
that caution should be used when drafting legal documents. However, I take
issue with Mr. Jacob’s assertion that only
non-lawyers should be cautious. I would hope that Mr. Jacobs implication that
lawyers need not take caution when drafting legal documents was simply an
incautious statement.
2.
He is correct that the forms are copyrighted, as
is his article in the Washington Post and any other non-governmentally
generated legal document. However, the RSC copyright is not held by GCAAR alone,
nor is the RSC copyrighted materials for GCAAR members only, it is available
for use by other Realtor association’s members as well.
3.
He is correct that these forms are not mandatory.
The law does not require buyers and sellers to hire an attorney (or an agent)
to handle the negotiations or even the writing of a contract to buy or sell
real estate. However, it would be inadvisable for an individual to act without
the advice of a licensed agent (or attorney) to help with the process.
Paragraph 13:
“If you are contemplating a real estate transaction in the coming year, you are best served by having it drafted or at least reviewed by a competent local real estate attorney who is up to date on the latest contract language.”
“If you are contemplating a real estate transaction in the coming year, you are best served by having it drafted or at least reviewed by a competent local real estate attorney who is up to date on the latest contract language.”
1.
Mr. Jacobs is exactly correct that it is
important to have the contract you use drafted by a competent local real estate
attorney. Fortunately, the RSC is just such a document having been created by a
group of attorneys in Maryland, Washington, DC and Virginia.
2.
The associations also felt strongly that their
clients would be best served by specifically informing them that they can have
their offer and contracts reviewed by an attorney. In fact, the RSC has a bold
faced reference in the contract that says: “If legal advice is desired by
either party, such party is advised to seek legal counsel”
3.
I believe that Mr. Jacobs is also correct that
if an attorney were to be hired to review the contract that he or she be competent
and up to date on the latest contract language. I would recommend an attorney
who has no misconceptions of the RSC and a complete and accurate understanding
of the differences between the current contract and the new contract that will
be released in January.
