Ed 2011-regional-sales-contract-summary


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Ed 2011-regional-sales-contract-summary

  1. 1. Regional Sales Contract and Conventional Financing Addendum Summary of Revisions Alan Simon, Chair NVAR Standard Forms CommitteeA revised Regional Sales Contract (RSC) has been developed and is being released effective January 1st,2012. There are significant changes in the new version compared to the current version of the RSC, aswell as revisions to related forms like the Jurisdictional Addendum among others. The principal changesare summarized here. You are encouraged to take advantage of training being offered in the industryand/or to consult your broker about learning opportunities to help come up to speed on the newcontract prior to the January 1st implementation.First of all, the length of the Contract has been reduced to 8 pages from its current 10. At the sametime, we are using a little larger font size to improve readability. The reduction in pages is due primarilyto removing CONVENTIONAL FINANCING TERMS, some DEFAULT language, and most of the ADDITIONSparagraph from the RSC itself. As described herein, some of this language has been moved into theJurisdictional Addendum, and some to a new Conventional Financing Addendum. This has helped tominimize the core portion of the contract, and allows you to include only the additional language that isnecessary as addenda.JURISDICTIONAL ADDENDUM (Paragraph #2): This paragraph is in place of the old ‘ADDITIONS’ paragraph (old #32). The placement of the paragraph was moved up-front to clearly indicate which Jurisdictional Addendum is included in the contract. Additionally, the list of jurisdiction-specific addenda that could be checked-off was removed; these are instead contained in the corresponding Jurisdictional Addendum, with only those forms that are applicable to the jurisdiction. This should improve clarity by eliminating forms on the list that are not available in a particular area.PRICE AND FINANCING (Paragraph #3): The PRICE AND FINANCING paragraph now incorporates language that was formerly contained in the DEEDS OF TRUST paragraph (old Paragraph #3) for the Purchaser to indicate the loan type(s) that are applicable. For consistency, there is a now a Conventional Financing Addendum, in addition to the existing addendum for FHA/VA financing.
  2. 2. The specific loan terms have been removed from the RSC, and instead are contained in the corresponding financing addendum. The only characteristics of the loan(s) indicated in the Contract are the Obtain OR Assume Loan and Fixed OR Adjustable Rate selections. Also removed from the Contract are the CONVENTIONAL FINANCING TERMS formerly contained in Paragraph #10. Specifically, the APPRAISAL and FINANCING options, (i.e., whether or not the contract is contingent on the appraised value, and whether or not there is a contingency on the Purchaser obtaining loan approval), and the SELLER SUBSIDY language. Similarly, the language in the REPAIRS paragraph (old Paragraph #17), covering lender required repairs was removed. All of the above is now contained in the various financing contingencies. Based on this restructuring, prior Paragraphs #3, #10, #11, and #17 have been deleted from the Contract and incorporated into other areas.PROPERTY MAINTENANCE AND CONDITION (Paragraph #7): The name of this paragraph has been changed from ‘EQUIPMENT, MAINTENANCE AND CONDITION’ to ‘PROPERTY MAINTENANCE AND CONDITION’ but moreover, there are major changes in the content of this paragraph that significantly affect the obligations and expectations of the parties. The principal change is that the property is to be conveyed in “As –Is” condition, with optional inspection contingencies available. The Seller is no longer required to provide any warranty as to the condition of equipment, appliances, or major systems by default. Purchasers are encouraged to include a home inspection contingency in order to assess the property condition and to negotiate items to be repaired. But if the Purchaser declines the opportunity for inspection(s), the Seller’s obligation is simply to deliver the property in substantially the same condition as of the date specified in the opening sentence of this paragraph. Why was this change made? The limited Seller warranties previously contained in Paragraph 7 often led to disagreements and fostered misunderstandings between the parties from the time of contract ratification through settlement. The most common problems encountered were related to: 1) Various interpretations as to whether an item or repair was covered by the Seller warranty in “Paragraph 7” and therefore whether it had to be corrected as a “Walk-through” item prior to settlement; 2) A lack of clarity in the meaning of the term “normal working order;” and 3) Two separate sets of requirements for repairs made under the Home Inspection removal process, and repairs made under the Seller warranty in Paragraph 7.
  3. 3. Therefore, the former two-stage process of Home Inspection items to be negotiated, followed by Property Condition (“Paragraph 7”) items to be repaired or replaced, is eliminated. Instead, there is an inspection period—if applicable—and a single list of items to be negotiated. The Seller does not warrant the condition of other items—only that the property is in the same condition as on the date indicated at the top of the paragraph—which can be the Contract Date, date of home inspection, or other date specified. The end result should be that the expectations of the Purchaser and the Seller will be more consistent throughout the process, which should reduce disputes at settlement.ACCESS TO PROPERTY (Paragraph #8): This paragraph was moved to immediately follow PROPERTY MAINTENANCE AND CONDITION, to provide a more logical flow. Language was added to provide clarity as to the scope of the inspection in an effort to remind agents accustomed to inspecting for “Walk-through” items at the final inspection.PERSONAL PROPERTY AND FIXTURES (Paragraph #10): Removed the ‘As-Is Items’ list from this paragraph. The need to identify “As-Is” items no longer applies since the Seller is not warranting the condition of any items unless they come under the home inspection contingency.FINANCING APPLICATION (Paragraph #11): Language was added at the end of the paragraph authorizing the disclosure of the Purchaser’s credit information to lenders, and for the Seller to comply with reasonable lender requirements.TERMITE INSPECTION (Paragraph #14): Deleted the word “structural” from “…visible structural insect damage” so that it now reads “visible insect damage” because the assessment of structural termite damage is not included in a typical termite inspection.TITLE (Paragraph #16): Deleted the word “requirements” in the last sentence because it was vague and lent itself to an overly broad interpretation by Purchasers and a very limited interpretation by Sellers.ATTORNEY’S FEES (Paragraph #21): This paragraph has been expanded to provide a more comprehensive description of the conditions under which a party would be entitled to recover legal expenses from another party that breaches the contract. The term “Legal Expenses” is used in place of “attorney’s fees” and it is defined in the DEFINITION paragraph (see below).
  4. 4. Additionally, the broker indemnification language has been revised to clarify the reference to the “responsible party” in the prior version of the contract.DEFAULT (Paragraph #23): This paragraph remains largely the unchanged, however the list of examples of Purchaser default scenarios was removed and incorporated into the Conventional Financing Addendum since these items are related to financing, appraisal, and lender requirements. This is consistent with the placement of this list in prior versions of the RSC.OTHER DISCLOSURES (Paragraph #24): Added “Defective Chinese Drywall” to the list of items in the PROPERTY CONDITION paragraph (#24.A).ELECTRONIC SIGNATURES (Paragraph #32): Authorization for use of electronic signatures has been added to the Contract, thereby eliminating the need for a separate addendum or for similar language in the Jurisdictional Addendum. Initial blocks are provided for each party to authorize the use of electronic signatures.General/Housekeeping Items: All paragraph references throughout the contract are now by name, not number. DEFINITION (Paragraph #26): Language was added indicating that all references to time of day refer to Eastern Time. Added a definition of “Legal Expenses” which is used in the revised ATTORNEY’S FEES paragraph. TIME IS OF THE ESSENCE (Paragraph #30): This language has been added to the RSC so that it is no longer needed in the Jurisdictional Addendum. OTHER TERMS (old Paragraph #34): Paragraph has been deleted from the RSC; the Jurisdictional Addendum will now contain space for other contract terms. Date of Ratification: This information in the signature area has been set off within a box to make it standout to help ensure that the date is filled in.Conventional Financing AddendumThe Financing Contingency has been re-written to more closely track with the recently adopted LandSales Contract. The most significant changes from the Conventional Financing Contingency in the prior(2006) RSC are the elimination of Regional Form 100 and the six-point Lender Letter. The Contract is
  5. 5. now contingent upon the Purchaser obtaining and delivering the Seller a “Written Commitment” for thespecified financing. If the Purchaser is unable to produce such a commitment by the deadline the Sellermay declare the contract Void unless the Purchaser can obtain such a commitment or proof of theability to close without financing within 3 days. The Purchaser no longer has the option to remove thecontingency without proving their ability to close.