Riding the Wave of Change
Reviewing the 2008-2013 GAR Purchase and Sale Agreement

The 2008 GAR Purchase and Sale Agreement (“Contract”) is the culmination of a process that started several years ago. At that time, the GAR Forms Committee (“Committee”) began to debate the relative merits of including in our residential purchase and sale contract a due diligence period during which buyers could arrange their financing, conduct whatever inspections of the property they desired, seek the repair of defects, and, if they so desired, terminate their contracts.
    Even considering this approach was a major departure for the Committee. It had long held the view, as reflected in earlier versions of our GAR form contracts, that GAR should not make it easy for either buyers or sellers to get out of their contracts to buy and sell real estate once they had been entered into.
What caused the views of the Committee to change? The answer is that there was an increasingly large number of disputes resulting from certain contingencies in the GAR Purchase and Sale Agreement designed to limit the ability of the parties, especially buyers, to get out of their contracts. This was particularly the case with the financing contingency and the traditional inspection contingency. Buyers and sellers were regularly fighting with each other over: (1) whether a defect identified by the buyer’s inspector was truly a defect, and (2) whether the buyer had been legitimately turned down for a loan or had instead improperly manipulated the loan process to obtain a loan denial.
    Contingencies designed at least in part to protect sellers were actually harming them because sellers were often learning that their transactions were not going to close only shortly before the closing. The Committee considered trying to close some of the loopholes that buyers were using to get out of contracts (which were often identified by buyers with the assistance of their real estate agents), but found that this could not easily be done without significantly increasing the length of the contract. Realizing that the time-honored way of transacting brokerage business in Georgia was no longer working as well as it once had, the Committee decided to move in a different direction and in 2007 included in our Contract the more flexible Due Diligence Period.
    However, recognizing that many REALTORS® knew nothing other than the traditional way of closing things, the Committee also left in the Contract the financing contingency and the traditional "right to request repair of defects" section.
    In this way, REALTORS® could slowly get used to the new Due Diligence Period without having to abandon approaches with which they were already comfortable. The good news is that the use of the Due Diligence Period has generally been well received by REALTORS®. Many REALTORS® surprisingly came to realize that the Due Diligence Period actually gave sellers better practical protection against buyers not moving forward with their contracts because sellers were at least learning of the buyer's decision during the Due Diligence Period rather than at the last minute. As a result of this, the Committee decided to eliminate the financing and inspection contingencies altogether in the 2008 Contract. In fact, it is not so much that these provisions no longer exist, as much as that they are now a part of the due diligence process.
    This article will discuss this and the other major changes to the GAR Purchase and Sale Agreement on a paragraph by paragraph basis. It is optimistically being referred to as the 2008-2013 Contract because the hope of the Committee is that now that the shift in the direction of our Contract is complete, the rate at which our Contract changes will now slow.

Paragraph 1: Purchase and Sale
A change was made in this paragraph with respect to the fixtures, landscaping, improvements and appurtenances that are included with the sale. The provision was clarified to exclude any item "identified in any Seller's Property Disclosure Statement attached hereto as not remaining with the Property." While the Seller's Property Disclosure Statement, as an exhibit to the contract, controls over the main body of the contract, this language should eliminate any question that items listed in the Seller's Property Disclosure Statement as not remaining with the Property do not remain with the Property under paragraph 1 to the contract.

Paragraph 2: Legal Description
This section of the Contract was substantially revised. By way of background, the trend of the Georgia courts has generally been to demand more precision in the legal descriptions that are included in purchase and sale agreements. The GAR Forms Committee has re-written the entire legal description section with a view toward making the property description more precise, and giving the parties more ways to describe the property being purchased and sold. The new options include: (a) using an actual legal description attached to the Agreement as an Exhibit; and (b) including either the Plat Book and Page reference or the Deed Book and Page reference in the agreement as to where the actual legal description can be found.
REALTORS® are encouraged to take the time to attach a complete legal description whenever possible since it is the most precise way to describe the property being sold. Of course, if the seller has a copy of the deed by which he or she acquired the property, the REALTOR® should first confirm that the property described in the deed has not been either added to or conveyed away in part since the deed was first written.
    One question REALTORS® will likely have when they assist their clients in filling out the new GAR Contract is whether they should describe the Property in all of the multiple ways the contract now allows. My answer to this question is no. A legal description in the contract must provide a key which unerringly leads to the exact location of the property. So long as the description a REALTOR® uses in the Contract accomplishes this goal, there is no reason to describe the property in multiple ways. In fact, if multiple legal descriptions are used and there is a conflict between them, the use of such descriptions could actually create a problem regarding the exact property being conveyed by the seller! Therefore, the goal should be to use the one most precise legal description available.

Paragraph 3: Purchase Price and Method of Payment
This new section replaces both paragraphs 2 and 6 of the 2007 Purchase and Sale Agreement. The financing contingency has now been completely eliminated from the contract, and the transaction is treated as an "all cash" transaction.
    Of course, even though the buyer must come up with cash at the closing, the buyer can still obtain a loan. The contract is simply not contingent upon financing. Of course, the buyer can use the Due Diligence Period, if that option has been selected, to determine if the buyer can qualify for the loan. As such, the buyer still effectively has a financing contingency because the buyer can terminate the contract during the due diligence period if the buyer cannot obtain a loan commitment. However, once the Due Diligence Period has ended, the downside risk of the buyer losing his or her financing rests squarely on the shoulders of the buyer. If the buyer fails to close because of a loss of financing after the Due Diligence Period has ended, the buyer would be in breach of contract.
Buyers who want a longer financing contingency period than the Due Diligence Period, or who are buying the property "as-is" but with a financing contingency, can attach the new GAR Financing Contingency Exhibit to their contracts. This exhibit simply takes the financing contingency provision from last year's contract and makes it an exhibit.

Paragraph 5: Closing Costs
Another major change to the GAR Purchase Agreement for 2008 deals with how the various costs associated with buying and selling real estate are allocated between the buyer and the seller. Matters regarding the payment of such costs previously appeared in both paragraph 5 (Seller's Contributions at Closing) and paragraph 13 (Taxes and Prorations). The GAR Forms Committee has now consolidated these provisions into a new paragraph 5. More importantly, the Committee believed it would ultimately be less confusing to consumers if all of the various costs associated with buying and selling a property were shifted to the buyer's side of the equation and the seller then made a single financial contribution towards these costs in a negotiated amount.
    The most controversial part of this approach is that the payment of the Georgia transfer tax has been shifted from the seller to the buyer. In the past, GAR form contracts have always provided that the transfer tax was being paid by the seller. While there has never been a law in Georgia requiring the seller to pay the transfer tax, many REALTORS® assumed that this was the case because our form contract had always had the tax being paid by the seller. Other costs previously paid by the seller but now being paid by the buyer under our Contract include legal fees for preparation of the warranty deed, owner's affidavit, powers of attorney, loan documents, and all closing costs (tax service charges, recording fees, courier fees, etc.). Hopefully the new provision will give both the buyer and seller a better idea from the beginning as to just what their costs will be to complete the transaction.
The new section also expands the list of expenses for which the seller’s contribution can be used by the buyer. The cost of appraisals, inspections, termite bonds, loan discount points, or costs to buy down a loan are all now acceptable uses for the seller's contribution toward closing costs. In doing this the goal of the Committee has been to try to make sure that the buyer can spend 100% of the amount contributed by the seller. Of course, in addition to making a negotiated contribution toward closing costs, the seller is still obligated to pay the cost of removing any liens, deeds to secure debt, judgments, or other encumbrances on title to the property and for any powers of attorney needed by the seller.
    The GAR Forms Committee anticipates that buyers will likely seek to have the seller’s contribution be an amount at least sufficient to cover the anticipated Georgia transfer tax, since it has been such a long standing practice in Georgia for the seller to pay this tax.
The other change in this paragraph relates to the proration of ad valorem property taxes at closing. Closing attorneys in Georgia have routinely had the parties sign a document at closing in which they each agree to re-prorate taxes after the closing if the proration used at the closing was based on an estimate and the actual taxes turn out to be higher or lower. The new GAR contract language now makes the Contract consistent with this long standing practice by incorporating similar language into the Contract. Specifically, the new language provides that the buyer and seller agree to "promptly make any financial adjustments between themselves as are necessary to correctly prorate the tax bill" when it is actually issued or when the appeal is concluded.
    REALTORS® should advise their clients that even though the parties may have agreed to re-prorate later, once the closing has taken place there may be little leverage other than filing a lawsuit to force parties to honor their obligations.

Paragraph 6: Date of Closing and Transfer of Possession
As before, both buyer and seller have the right to unilaterally extend the date of closing by seven days under certain circumstances. Those circumstances have been clarified in the 2008 Purchase and Sale Agreement. The parties have always had the right to extend the closing date if the seller could not satisfy "valid" title objections. However, new language has now been added to the Contract to specify that liens, judgments, and deeds to secure debt against the property which can be satisfied through the payment of money or the bonding off of the lien cannot be used by the parties as a basis to extend the closing. In other words, if the title objection can be eliminated by the seller writing a check (either to satisfy the lien or to bond it off), the seller must do so rather than extending the date of closing.
    The buyer or seller can also extend the closing date once, if either the mortgage lender or the closing attorney cannot fulfill their respective obligations prior to closing. New language has been added to the Contract to specify that in order to take advantage of this provision, the inability of the mortgage lender or the closing attorney to close must be "due to no fault of the Buyer." In other words, if the reason the lender or closing attorney are not ready to close is that the buyer, for example, has not cooperated in providing the mortgage lender with needed information, the buyer cannot use his or her tardiness as an excuse not to timely close the transaction. Finally, both parties consent that the closing attorney and any mortgage lender may disclose the basis for any delay in fulfilling their obligations.

Paragraph 10: Inspection
One change of note was made to the Inspection paragraph. The buyer now acknowledges that buyer has had the opportunity to become acquainted with all existing neighborhood conditions and proposed changes thereto, and the list of conditions covered now includes odor and/or noise producing land uses (rather than odor producing factories). In other respects the provision remains unchanged.

Paragraph 11: Property Sold Subject to Due Diligence Period or "As Is"
In previous versions of the GAR Purchase and Sale Agreement, the buyer and seller had a repair option where the buyer could request the repair of defects identified by the buyer’s home inspector. This provision has now been eliminated from the contract. As a result, the property can now be sold either subject to a Due Diligence Period or “As-Is.”
Buyers can still request the repair of defects during the Due Diligence Period by submitting an Amendment to Address Concerns with Property. For those REALTORS® who loved the “Property Sold Subject to Right to Request Repair of Defects” section, it has now been incorporated into a new exhibit that REALTORS® can still attach to the Contract.

Paragraph 12: Appraisal
While the option of making the purchase and sale agreement subject to the property appraising for at least the purchase price is new to the GAR Contract, it should not be new to most REALTORS® who have been incorporating appraisal contingencies into their contracts for quite some time. However, rather than having REALTORS® draft such special stipulations, the Forms Committee has now provided REALTORS® with an exhibit that can be attached to the Contract for this purpose. The Appraisal Contingency Exhibit provides that the Contract is subject to the property appraising for at least the purchase price stated in the Contract. It also defines who is considered a “certified appraiser” for purposes of the contingency, specifies the timeframe within which the appraisal must be completed, and addresses options if the opinion of the value of the property in the appraisal is below the contract price.
Unlike some appraisal contingencies, the new exhibit does not give the buyer an automatic right to terminate the contract if the property does not appraise for at least the purchase price. Instead the buyer only has the right to request that the seller reduce the sale price to an amount no less than the appraisal price by submitting an Amendment to Reduce Sales Price to the seller. The logic behind this approach is that if the buyer was willing to purchase the property at a higher cost, the buyer should also be willing to buy the same property at a lower cost. If the seller agrees to the request for a price reduction within the specified time limit, the buyer is obligated to purchase the property at the new price. If the seller does not agree to the price reduction, the buyer may either terminate the contract without penalty or waive the contingency and close on the property.

Paragraph 14: Agency and Brokerage
There are no changes in the "Agency Disclosure" section of this paragraph, but the "Brokerage" section contains an important addition relative to the payment of a commission to the brokers in the event the sale does not close. As with previous versions of the GAR Purchase and Sale Agreement, the language provides that the defaulting party shall immediately pay the brokers the full commission they would have earned had the sale closed. This provision is currently the subject of a court challenge because in part it does not set out the specific commission amount the parties are promising to pay in the event of a default. The new language tries to strengthen this language in favor of REALTORS® without requiring the commission details to be in the contract.
    The most common problem with the existing language is in situations where the buyer defaults on a contract to purchase a piece of property, but has signed an Exclusive Buyer Brokerage Agreement in which the commission paragraph has been crossed out, left blank or filled in with “N/A.” The question in such situations is whether the broker can still rely on the general language of the Contract requiring the nonperforming party to immediately pay the Broker(s) the full commission the Broker(s) would have received had the sale closed.
New language in the 2008 GAR Purchase and Sale Agreement includes an acknowledgment that both buyer and seller are generally aware of the amount of the commissions to be paid in the transaction, and provides that the obligation for the defaulting party to pay a commission shall "not be limited by any prior agreement of the Broker(s) and the defaulting party." In other words, even if a buyer's brokerage agreement provides that in the event of a default the buyer will not owe a commission to his or her broker, the provision in the Purchase and Sale Agreement will still be in effect and the selling broker will still be able to collect the commission.
    Since it is unclear how the litigation will be resolved, REALTORS® wanting to get paid for their efforts are well advised to include the specific commissions to which they will be entitled in the event of a default by a party in their buyer brokerage agreements.

Miscellaneous
In addition to the changes in the Contract, the Forms Committee has also re-organized and significantly increased the number of special stipulations available for use by REALTORS®.
It also modified the Counter-offer Form to make it clear that every new counter-offer rescinds all previous counter-offers. Therefore, even though the parties may have come to some agreement on an issue in a previous counter-offer, that agreement must be reflected in all subsequent counter-offers.
    Finally, the Forms Committee has created a new Source of Funds Exhibit that should benefits sellers. Among other things, it requires buyers to identify within a negotiated timeframe where their funds are coming from to buy the property and provides that the buyer is in default under the Contract if they fail to do so.

Conclusion
The GAR Forms Committee is constantly looking for ways to make our forms shorter, clearer and more protective of REALTORS®. Hopefully, these goals have been achieved with the 2008 Purchase and Sale Agreement.

Seth Weissman serves as general counsel for the Georgia Association of REALTORS®. He is a partner of the law firm of Weissman, Nowack, Curry & Wilco, P.C., a full-service real estate, business and litigation law firm with 14 offices located in the metropolitan Atlanta area. Please visit the firm online at www.wncwlaw.com.