A person who has been given a Power of Attorney (“POA”) may execute a Purchase Agreement for the sale or purchase of real estate, so long as very specific required conditions are met.
The grantor of the POA is referred to as the Principal. The grantee of the POA is referred to as a Representative or agent. The POA may be recorded, but it is not required.
The GAR Purchase and Sale Agreement, exhibits and amendments allow buyers and sellers to refine the terms of their agreement. The Due Diligence Period (DDP), the Buyers’ Right to Inspect, the Right to Request Repairs (RRR) and the Amendment to Address Concerns are all tools that are used to come to an agreement between the parties. If the parties cannot agree, they are also tools that allow termination of the contract.
Important Points to Remember about how these different tools operate:
Due Diligence Period and Amendment to Address Concerns
The Due Diligence Period is located in the main body of the contract on page 1, paragraph 8 and is further explained on pages 3 and 4. The Due Diligence Period can be analogized to an option period. Within the Due Diligence Period, the buyer may decide to proceed or not proceed with the purchase of the Property for any or no reason. Any negotiation of repairs that come up in an inspection are done during the Due Diligence Period. The buyer delivers its repair terms on the Amendment to Address Concerns (ATAC F704). The seller can agree to the terms, can reject the terms or the terms can be negotiated, but there must be agreement prior to the end of the Due Diligence Period or the buyer can find itself buying “as is.” That is, if there is no agreement between the parties regarding the terms of the ATAC and the buyer has not terminated the agreement, then the buyer has accepted the property “as is.”
Unilateral Notice To Terminate Purchase and Sale Agreement and Proposed Disbursement of Earnest Money
Alternatively, if the buyer decides not to proceed, either because they have decided against the house or terms of the ATAC cannot be agreed, the Buyer must send a notice to terminate to the seller. Usually, it is sent using a Unilateral Notice To Terminate Purchase and Sale Agreement and Proposed Disbursement of Earnest Money (F522). However, some agents play it safe and include a Notice of Termination within the ATAC in the event that the Buyer and Seller do not agree. Although the Buyer has the right to terminate unilaterally, both parties must agree to the disbursement of earnest money. Usually, if a termination is during the Due diligence period, it’s not an issue and the seller signs off on a return of earnest money to the buyer. However, if the parties cannot agree to disbursement, then the Holder of the earnest money joins the action by sending a “10-Day Letter” to all parties. A 10-Day Letter is a reasonable interpretation of the contract as to who is to receive the earnest money. The process is explained in detail in the Purchase and Sale Agreement, page 3 paragraph 7.
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!