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In a Market Like This, the Words to Remember Are “Caveat Venditor” - 2008-08-24 |
My dictionary defines a contract as "an agreement between two or more parties, especially one that is written and enforceable by law." It then gives an alternate meaning: "a paid assignment to murder someone." Unfortunately, some sellers today are having to take a hit on the way to getting a sale.
Since early in 2008, the Georgia Association of Realtors has issued a newly revised real estate contract, called a "purchase and sale agreement." That form has led some sellers to cry foul.
The change involves the replacement of the old "inspection clause" with a new "due diligence period."
Under the old form, buyers typically could have a certain number of days to have the property inspected by a "professional inspector." And if that inspection revealed serious defects or unsafe conditions, the buyer could request that those problem areas be repaired or replaced, provided he gave the seller a copy of the original inspection report.
Then the seller could accept or reject the buyers request. If the seller agreed to have the repairs performed, then the buyer had the right to re-inspect, and the buyer's inspector could again request repairs if they were deemed needed, and the seller could re-repair, and so on, and so on, forever.
Clearly, something needed to be changed. Part of the problem stemmed from the fact that we don't have licensed home inspectors in Georgia. What exactly is a defect and what is not? And whose opinion should we accept as authoritative?
Another problem arose when allowing the seller to make repairs on what would soon become the buyer's new home. Buyers often felt that they should be the ones deciding who would perform the work. And if the work performed was less than satisfactory, what remedy did the buyer have?
So this year, the GAR decided on a different approach.
Removing the inspection procedure in its entirety, the new form allows the buyer and seller to agree on a "due diligence period," consisting of a negotiated number of days. During this period, often 7 to 10 days, the buyer has the right to perform any inspections or tests that he may desire.
He can hire a "professional inspector," walk through the neighborhood, visit the schools, drill for oil, or have the soil assayed for traces of gold or silver. And during this period, the buyer can, at any time and for any reason, simply notify the seller that he is withdrawing from the contract and that the deal is off. In that case, the buyer's earnest money is returned in whole.
Likewise, if the buyer chooses, he can attempt to renegotiate the agreement to compensate for any circumstances or conditions that may have been discovered during the due diligence period. If the seller refuses, the buyer may withdraw, or he may choose to proceed anyway and still buy the house, warts and all.
This all seems very fair in theory.
From the buyer's side, no one should be required to buy a house that has conditions that the buyer didn't know about when he signed the original offer. And from the seller's side, after a reasonable time to fully investigate the property, the seller deserves to know that the buyer is fully committed to follow through to the closing.
But some buyers are employing a strategy which seems calculated to rob the
seller of the agreed-upon purchase price. Here's how it works:
The buyer looks for homes that have been on the market an extended period of time, assuming that the seller is weary of having his home on the market. That's not too hard to find in this season.
The buyer makes a low offer, representing in the agreement that he is accepting the property subject to his "due diligence" period of seven to ten days. The seller becomes emotionally hooked on the offer, believing it to be a genuine offer to purchase the house (which it technically is).
Then toward the end of the due diligence period, the buyer produces a laundry list of shortcomings he has discovered about the house, real or imagined. Instead of asking that any "defect" be corrected, he simply offers to re-negotiate the price at a steep discount. In exchange for the lowered price, the buyer will now agree to purchase the house "as is."
For a worn-out and beaten-up seller, the only choice available seems to be to accept the reduced price offer, praying that the closing will happen and that they will be released from real estate purgatory.
In my opinion, there is nothing wrong with the way the forms are written. It is only reasonable for the buyer to expect a period of time to inspect whatever it is he is buying. What's unreasonable is allowing the buyer to bully the seller into accepting less for the house than the seller honestly feels it is worth.
Sellers must understand ahead of time that the offer to purchase will almost certainly contain a contingency for inspection, whether it's called an inspection period or labeled a "due diligence period." During that time, the seller needs to know that he is still not under a firm agreement, and that the buyer may very well come back and ask for more.
The only alternative is for the seller to insist that all offers include a stipulation that the contract contain no contingencies whatsoever and that the buyer agrees to accept the property in "as-is" condition. Unfortunately, in today's buyer's market, such an attitude would result in few offers.
My advice is "caveat venditor." Let the seller beware!
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One of the significant annual expenses faced by any Georgia property owner is ad valorem property tax. Depending on where you live, it can be as high as three percent of the property's fair market value, and it must be paid year after year after year.
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