If a buyer is denied a loan, based on the loan described in the contingency, the buyer must 1) notify the Seller within the contingency time period AND must 2) provide the Seller with a Loan Denial Letter within seven (7) days from the date of notice.
A Loan Denial Letter must be for the Loan(s) described in the Finance Contingency. A buyer may also apply for different conventional loans, however, the denial of such other loans is not be a basis for a buyer to terminate. If there was an approved lender, the letter must be from the Approved Lender.
The Loan Denial Letter may be provided to Seller after the Financing Contingency Period has ended, if the seven (7) day period to provide the Loan Denial Letter falls outside of the Financing Contingency Period. The reason for the additional 7-day period to produce the Loan Denial Letter is because lenders may not be timely. It may take days for the lender to produce the letter. If, however, the lender does not produce the letter within the 7-day period, the finance contingency is completed and cannot be relied on to terminate. In effect, the sale becomes a “no financing” sale and the buyer’s earnest money is at risk.
In this very hot seller’s market, buyers are doing everything they can to be the winning bid in multiple offer situations. It is now very common to see buyers waiving the finance contingency and agreeing to pay a purchase price above the appraised price.
Avoid extra steps and stress. Consider the following appraisal and price issues:
by Mark Moore with Fairway Mortgage
The “appraisal gap” as it’s becoming known, is a real issue with the lack of homes and so many buyers. Multiple offers are commonplace and so are bidding wars. Even good appraisers who know the market and understand the actual definition of fair market value are struggling to come up with comparable sales that meet the criteria of the agencies (Fannie, Freddie, FHA, etc).
Now more than ever, current market data provided to the appraisers can help. Be sure you have copies available of the multiple offers on your listings, and let the lender know that you have them and are willing to provide to the appraiser. Also, any recent market information you have that the appraiser might not know about can help. For example, do the realtors involved know of a similar property that has just closed in the last week or is scheduled to close just before the subject property? If so, providing that information is another way to help appraisers get the value in this tough market.
Fairway uses a very small rotations of quality appraisers in each area of town. We attempt to provide enough work to those appraisers to become important to them. They are a very important part of our team and critical to our success and are graded on accuracy, timeliness, and other factors to determine which appraisers make it into our “elite rotation”. As a result, we have had very few appraisal issues during this market, and we have become the “bailout” lender for many of the big banks, credit unions, and internet lenders who do not use such a strategy.
However, with the market pressures (everyone asking for faster and faster appraisal contingencies) this can sometimes force us off the elite panel and into a less trusted group of appraisers to meet the ever-shortening time frames. If you have a good offer, with a solid local lender, encourage your sellers to give that lender time to get a quality appraiser out to the property. It will create much less stress and hassle down the road! Faster isn’t always better!!
If you have further questions about this or anything else, we are happy to assist.
Low inventory has been driving multiple-offer situations and bidding wars.
If the perfect house is already under agreement, your Buyer may want to secure a position by using a back-up offer.
GAR Forms has the situation covered by submitting the basic Purchase and Sale Agreement and including a Back-Up Agreement Contingency (F604) as an Exhibit. If the agreement is accepted by the Seller with the Back-Up Agreement Contingency Exhibit included, it becomes a Binding Agreement – in second position.
From the Seller’s standpoint, there are good reasons to accept a back-up, especially if the price and terms are better than the first agreement. From the Buyer’s standpoint, there are considerations. The back-up Buyer may need to increase the price or be flexible on terms to be accepted as a back-up. Further, a back-up can work against the second Buyer by elevating the primary’s motivation to make the deal work, so the Primary buyer may be more likely to forgive inspection issues and be more cooperative in Seller negotiations.
All things considered, the Buyer’s risk is moderated by protections built into the GAR back-up contingency exhibit.
The back-up Buyer is not locked in until they become Primary..
Multiple Back-up Agreements
If there are multiple back-up agreements, the order that the Seller signed the agreements would be the order in which they are entitled to become primary. Later offers would, of course, most often be at higher prices. This would to entice the Seller to sign a backup offer instead of putting the home back on the market if the first sale failed.
Earnest Money Deposits
The timing of the earnest money deposit is a negotiable term. If your Buyer does not want to deposit earnest money until the agreement becomes primary, write it that way. But if the Agreement is written that the earnest money is due upon binding (or days after binding) agreement, then it must be paid that way. An accepted agreement, even one with a back-up contingency, is a binding agreement.
Note: Delaying payment of earnest money could be interpreted by the Seller as a negative strike against a Buyer. Something to consider.
The Binding Date Changes Upon Delivery of Notice of Primary Agreement Termination
Time limits for a secondary agreement that has become the primary agreement start on the date that the Seller sends Notice of the Termination of the Primary Agreement.
The new Primary Buyer still has the right to conduct its due diligence or fulfill other contingencies. If the changes to the contingency periods or the Due Diligence period overlap the closing date, then the new closing date is extended to seven (7) days from the last date Buyer has to fulfill Buyer’s contingencies or the end of any Due Diligence Period, whichever is later. (F604#5)
Hope this helps!
Fair Housing testers are out in Metro Atlanta. Although you may have attended many Fair Housing seminars and think you know the ins and outs of staying compliant, you can get caught in an innocent situation and be found liable for a fair housing violation.
The Department of Justice brings suit on behalf of the United States to enforce the Fair Housing Act. The Georgia Commission on Equal Opportunity determines violations of the Georgia Fair Housing Act. Suit can be brought by either or both for Fair Housing Violations.
There are multiple ways to get caught in the Fair Housing net. One is through Fair Housing Testers and another is having a complaint filed by protected class members that think they have been treated unfairly.
The Testing Process
Fair housing testing is a strategy used to determine whether people looking for housing are being treated differently, based on their membership in a protected class. Testers are looking for differences in the quality, content, and quantity of information and services provided to seekers of apartments and houses.
The testing process often begins when an individual with a protected characteristic (e.g., race or national origin) files a complaint with a private fair housing advocacy organization that he or she has been treated unfairly. The process can also be random, without a complainant initiating it.
The characteristics that are most commonly the subject of testing are race, disability, familial status, and national origin. To determine if discrimination played a part in an applicant’s rejection or in the treatment the individual received, the advocacy group, many of which are funded by HUD, will send a “comparable” person to inquire about renting a unit at the same complex or purchasing a home from the same sales agent.
A testing method that is currently being used in Atlanta involves using 3 different callers to the same agent. One is African American, another Hispanic and the third Caucasian. All ask the agent if the property is available. All ask for more information. If the agent tells one caller about the community amenities, but doesn’t tell the others, a flag is raised as possible evidence of discrimination. If an agent requires a pre-qualification from one, but not others, a flag is raised. If an agent spends more time on a call with one caller, a flag is raised.
Sales agents do not use set scripts. An agent may have more time to talk or may not have any time. Although the 3-caller method is supposed to be fair, maybe it’s not, but it is being used. The key is to be consistent in that initial call. Ask consistent questions. Give consistent information. Be available for a follow up call or appointment. Don’t give the impression that you’re too busy for a call. That call may just be a tester looking for red flags!
Recently, an RMAA agent was accused of a Fair Housing violation by an applicant for a rental. The Complainant was treated the same way that the eventual tenant was treated. The home was presented to both in the same way, with private appointments. Both were sent applications for rent, including income and credit checks. A third-party verification database was used to process and assess the rentability of each applicant. The Complainant was informed that there was another application in process for rental of the house. Both applicants were considered at the same time. The eventual renter had a slightly higher credit score, although both were more than adequate. The Complainant’s third-party report suggested that the income may not be as high as stated in the application. The Caucasian applicant got the house. The African American applicant filed a complaint with the Georgia Commission on Equal Opportunity, stating that she was denied based on race.
Fortunately, the Complaint was found to have “No Reasonable Cause” for a violation. Evidence of equal treatment of the 2 applicants and the superior third-party report were important factors.
To prevail under the Georgia Statute, the Complainant must show that:
To prevail under the Georgia Statute, the Complainant must show that:
If there are previous listing brokers or buyer brokers that represented a prospect that wants to be your client, what are your responsibilities?
These situations come up daily. A seller or a buyer wants to change agents and calls you. Or a buyer is referred to you, but the buyer had been looking at houses with another agent. Or you want to list a property that has been listed by another broker.
Be very careful. You could be violating both Georgia law and the NAR Code of Ethics. Each carries its own consequences.
If there is an active written agreement with another broker and the prospect, you have to honor that agreement and back away until you are certain that no active agreement exists. Even if a brokerage agreement has expired, there may still be a protection period that has to be honored.
These rules need to be top of mind:
Interest rates are up! If you haven’t heard interest rates over the last few weeks have popped up into the low – mid 3% range for a conventional 30 year fixed with good credit. Of course, you can still pay points to buy the rate back into the upper 2’s but help your clients that pre-approved 3+ weeks ago know that this was a market move. I do think that rates moved a little fast and I wouldn’t be surprised if we see a bit of a pullback over the next week or two. But the general trend is a slow increase throughout the rest of 2021 with rates predicted to end the year in the upper 3’s. We are going to host a 15-30 minute Zoom meeting next week to talk more about rates, where I think they are heading, and what to expect for the Spring market. Be sure to sign up!
Earnest Money Defined
Earnest money is the buyer’s commitment of funds to indicate a serious desire to buy a property. It is customary, but it is not a legal requirement for a binding sales contract. The mutual promises to exchange valuable assets provide the legal consideration, if there is no earnest money. In this hot Seller’s market, an offer without earnest money may not even be considered.
The Holder and the Amount of Earnest Money
The amount of earnest money is a matter for negotiation between the parties and varies with the circumstances of the transaction and the relative negotiating power of the parties. If the buyer pays a small amount of earnest money and later decides not to buy, they may be more willing to forfeit the earnest money and walk away from the contract. On the other hand, a substantial earnest money deposit offers more protection against the possibility of a buyer’s breach.
The Holder of the earnest money is also up for negotiation. In the Atlanta market, the Buyer’s broker generally holds the earnest money. In other markets, like Savannah, it is the opposite. There is also a trend to the closing attorney holding the funds, as attorneys are generally seen as neutral third parties.
Telephone Solicitations and DO NOT CALL Compliance
It is the policy of RMAA to comply fully and completely with all federal and Georgia state laws and regulations regarding telephone solicitations. Federal and Georgia law and regulations prohibit the making of unsolicited telephone sales calls to homeowners who have entered themselves on the National Do Not Call (“DNC”) list. The Company also maintains an in-house DNC list. It is the responsibility of every employee or licensee to check both lists and to be certain not to make an unsolicited sales call to a person on either list. If the Company is fined due to a violation of the DNC laws and regulations, the Associate is responsible for the fine and will be billed accordingly.
The FTC has a fully automated and secure website — telemarketing.donotcall.gov — to provide access to the National Registry’s database of telephone numbers, sorted by area code.
The National Do Not Call registry requires a fee, which must be paid by the Associate. For fiscal year 2020, the annual fee is $66 for each area code of data accessed or $18,044 for access to every area code in the registry, whichever is less. The first 5 area codes of data may be accessed at no charge.
The rules can be confusing. Disclosure is the key.
Georgia Law and Federal Law. You can’t share commission with an unlicensed party.
According to both Georgia law and federal statute, a licensed real estate agent cannot share a commission with an unlicensed person.
RESPA (Real Estate Settlement and Procedures Act), the federal law, governs the majority of residential real estate transactions (those that close with an institutional loan). Under RESPA, both the licensed agent and the unlicensed recipient would be guilty of a violation of federal law if a licensed person shares a commission with an unlicensed person.
Georgia License Law is consistent with the federal law. It is a violation of the Unfair Trade Practices and the GAR Rules to pay a commission or compensation to any person for performing the services of a real estate licensee who has not first secured the appropriate license under this chapter or is not cooperating as a nonresident who is licensed in such nonresident's state or foreign country of residence. O.C.G.A. Section 43-40-25(b)(17), GAR Rule 520-1-.06.
Disclosure is required to your principal when you are paying a referring agent.
GAR Rule 520-1-.10 (6)(e) operates when an agent receives a referral and then pays a fee to the referring broker. Disclosure is required no later than a closing for a purchase or a lease, but it can also be disclosed on a brokerage agreement, purchase or lease agreement. This would apply to Broker to Broker referrals and companies like Opcity, 55+ and others.
Consequences for violations can be severe, ranging from a reprimand to a fine to revocation of a license.
Exceptions to the “No Rebate” Rule
For state and federal policy reasons, there are exceptions to the “no rebate” to an unlicensed person rule. Both Georgia and the Justice Department see value in allowing certain rebates. GAR allows rebates under the theory that the rebate is effectively being paid by both parties, the broker is giving back to the principal and is just “netting out.” The Justice Department allows a rebate under the theory that it is important to competition and lower prices for consumers.
To avoid a violation of the laws, the rebate must be clearly shown on the Settlement Statement. It must be totally transparent to all parties and to the lender.
Most often, we see rebates as a trade-off for a service. (Agent pays for a tree to be removed, carpet to be cleaned, etc.) A rebate can also be a straight discount, without any trade-off of service, so long as it is disclosed. As a marketing strategy, some brokerages offer a rebate with all normal services or lesser services included. There are those who criticize this business model, but as long as it is fully disclosed on the Settlement Statement, it is legal. It is up to agents and their broker to decide whether a rebate is appropriate.
Instructions to Closing Attorney
GAR F255, Instructions to Closing Attorney, is the appropriate vehicle for disclosure rebates at Section 4. “The Seller’s Broker, the Buyer’s Broker and their respective affiliated licensees hereby direct the closing attorney to disclose on the settlement statement for the above-referenced transaction the following referral fees and rebates they have or will be paid or have received or will receive in said transaction.”
When Disclosure of a gift, product, service or a thing of value to an unlicensed party is NOT required.
GAR Rule 520-1-.10 (6), Disclosure of Commissions, Fees, Rebates, or Other Valuable Consideration, clarifies when disclosure is not required. “No disclosure is required for gifts, products, services, or other things of value given to a principal by a licensee provided that they are not contingent upon the purchase, sale, lease or exchange of real estate for that transaction. That is, there is no quid pro quo. (You can use my condo anytime, whether we do a deal or not.)
Note: The Selling and the Listing Agents can rebate only to their own principal. That is, a Buyer’s agent can rebate only to the Buyer and a Seller’s agent can rebate only to the Seller. So, if 2 agents decide to each contribute to a cost, the division of costs must follow this rule.