- - Thursday, February 2, 2012

A relatively small change in the language of the regional sales contract in the Washington area may have a big impact on the home-buying process, mostly because the new language reinforces the importance of a thorough home inspection for prospective buyers.

The Northern Virginia Association of Realtors (NVAR) and the Greater Capital Area Association of Realtors (GCAAR) collaborated on a new sales contract that their members in the District, Montgomery County and Northern Virginia began using Jan. 1. Counties in other parts of Maryland, including Prince George’s, Howard and Anne Arundel counties, will continue to use the sales contract approved by the Maryland Association of Realtors.

While several changes have been made to the regional sales contract, the widest-reaching change is in the property-condition clause.

“The previous contract stipulated that the home seller warranted that the ‘electrical, plumbing, heating and air conditioning systems and appliances would convey in normal working order on the day of settlement,’ ” said Adrian Hunnings, principal broker with Palladian One Realty in the District. “The problem is, no one could ever get a legal definition of the criteria for something being in ‘normal working order.’

“What’s normal in an 80-year-old home may be completely different from a home with a newly renovated kitchen,” he said.

Mr. Hunnings said the confusion over the language resulted in numerous disagreements at the settlement table.

“When last-minute issues came up about property condition, you didn’t necessarily see a lot of lawsuits because people were ready to sign and move,” Mr. Hunnings said. “Buyers and sellers were forced to compromise in order to get moving, but this often left everyone dissatisfied.”

Sometimes confrontations occurred because the sellers had no idea they were expected to certify that the oven or refrigerator worked to the buyers’ satisfaction. On other occasions, buyers were shocked to discover a leaking roof or wet basement or other structural problems were not covered by the “normal working order” clause.

“There was often a question after a home inspection generated a list of things that needed to be fixed whether each item fell under a ‘required repair’ list or whether it was a negotiable item,” said Greg Ford, an associate broker with Keller Williams Capital Properties in the District. “Now everything is equally negotiable.”

Home sellers are now required only to deliver the property “free and clear of trash and debris, broom clean and in substantially the same physical condition as determined” on a particular date, usually either the date of contract or the date of the home inspection.

On the surface, this seems to relieve sellers of responsibility for their home and therefore sway the contract in their favor. Local Realtors, however, say that in practice, the contract benefits both sides because it increases the clarity of negotiations about the property condition for both sellers and buyers.

Alan Simon, vice president of contract forms and licensing operations for Long & Foster Real Estate in Chantilly and chairman of the NVAR Standard Forms Committee, said sellers need to understand that the new contract does not automatically relieve them of any responsibility for home repairs.

“Sellers need to deliver their home in the same condition as it was on a specified date, so if something breaks in between that date and settlement, they will need to make the repair,” Mr. Simon said. “They will also need to pay for and/or repair anything agreed on in the contract.”

If homeowners want to sell their property “as is,” they will need to complete an addendum to the contract that states they are selling the residence without making any repairs.

“Buyers may benefit from the new contract because they can negotiate on any and all items,” Mr. Ford said. “In addition, buyers have to acknowledge that they don’t want an inspection, which gives their buyer’s agent a chance to discuss the importance of having a home inspection.”

David Howell, executive vice president and chief information officer of McEnearney Associates in McLean, said buyers and sellers often were confused over what items were required to be in “normal working order,” so sometimes buyers would just assume the seller was going to fix the stove before settlement and leave that item off the list of problems found during an inspection.

“The intention of the new contract is to create greater urgency for the home inspection and to allow time for both sides to come to an agreement about what the seller will and won’t do and what the buyer will or won’t accept,” Mr. Howell said. “After the inspection, everything is on the table for negotiation. There will either be a meeting of the minds or the end of the contract.”

Mr. Simon said buyers need to understand they must negotiate with the sellers about repairs, so they should use the home inspection as a time to think about which items on the checklist are the most important to have repaired.

Ed Wood, an associate broker with City Houses in the District, said the new contract provides buyers the option of making an offer on a home and requiring a home inspection followed by negotiations about repairs, or making an offer including a “general home inspection.”

“A general home inspection offers buyers the option of going forward with the contract or not but says the buyers won’t ask for repairs to be made by the owners,” Mr. Wood said.

Home sellers must submit a disclosure or disclaimer statement to describe any material defects in their property, but Mr. Wood said these forms are not a substitute for a home inspection.

“It’s always been a good idea to have a home inspection because even though sellers must disclose latent defects, they don’t always know everything about the condition of their home,” Mr. Wood said.

In addition to creating more clarity about home inspections and property-condition negotiations, Mr. Ford said the revised regional sales contract is shorter and can accommodate electronic signatures more easily. Mr. Wood also pointed out that potential contract contingencies have been pulled out of the document and clustered as addendums at the back of the contract, making it easier for buyers and sellers to understand.

Local Realtors and brokers typically rewrite the regional sales contract every few years to reflect market changes. Realtors said they anticipate the main benefit of the recent revision will be a simpler, more transparent real estate transaction.

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