This year’s changes to the Georgia Association of REALTORS (GAR) contracts have some minor edits and some major changes.  The two biggest changes are that buyers now must now secure their loans during a Financing Contingency Period and don’t have all the way up to the closing date to be approved for a loan.  This helps sellers.  The other change helps buyers.  It allows them to stipulate that they are offering on multiple properties at a time.

Financing Contingency Period 

Buyers cannot string along sellers all the way to closing any more and then fail to close because the loan did not go through.  Too many times you’d be a day from closing with the seller packed and moved out only to have the deal fall through.  The seller was left incurring many costs and still having a home to sell.

Now, buyers have a negotiated period of time (say 14 days) to apply for the loan and get it approved.  If they don’t provide a denial letter from the lender within the contingency period, they are deemed to have the ability to obtain the loan and the contingency is removed.

While this system is new to Georgia, it is used in other states.  I believe that California for instance has an 18 day contingency period after which the buyer is considered able to purchase and should they fail to purchase they lose their earnest money.  This approach is also similar to how many builders’ contract work.

The impact of this new approach is that lenders will have to be able to take the application, process the loan and commit to their buyer clients that the loan is approved.  Buyers may elect to apply to financing and even pre-approval earlier in the purchasing process – and they may also elect to deal with established lenders with proven ability to deliver rather than the “We have the lowest rate today” lenders found on the Internet.

Due Diligence Period

The other big change is that the “Right To Terminate” method of purchasing has been changed to a “Property Sold Subject to Due Diligence Period” option.  It used to be that if you chose the Right To Terminate, you had a stipulated number of days to simply back out of the contract for no reason.  This approach to purchasing was often used by investors or in situations where one spouse saw a property and wanted to get it under contract while giving the other spouse an opportunity to approve or veto the purchase.

The Due Diligence Period can be used to do any sort of inspection that the buyer wants and then the contract can be amended to address any concerns with the property.

The big change, though, is that the Due Diligence Period section of the contract now has a place to stipulate that the buyer is under contract to buy another property or that the buyer shall have the right to enter into another contract.  This strengthens the negotiating position of the buyers.  Sellers are less likely to dicker over repairs or price and terms if they are aware that the buyer is ready to buy something else.  It allows buyers to play sellers against each other to an extent.

Moral

When entering into a contract, particularly during the early months of the year, look to see which version of the contract you are using.  The year is noted in the upper right hand corner of the first page under the GAR logo.  I think the 2007 version is better than the 2006 version and I’m using it now; but some agents may be slow to switch over even though February 1st was when we were supposed to start using the new version.  

If you are selling your home by owner, make sure you know which version you are using, the differences and how they.  Better yet, call me.  I’d be glad to help.