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2021 Contract Updates: How Do They Affect Me?

Whether you are a buyer, a seller, or a Realtor, the 2021 real estate contract changes will affect you, and understanding the changes can help ensure you have a smooth transaction. This year, both the FAR/BAR standard Sales Contract and the AS-IS Contract have been updated. While there are changes to both contracts, the AS-IS Contract is the most widely used contract in the market, so we will dive into the major changes that were made to it (we won’t be addressing all minor technical changes).

Whether you are a buyer, a seller, or a Realtor, the 2021 real estate contract changes will affect you, and understanding the changes can help ensure you have a smooth transaction. This year, both the FAR/BAR standard Sales Contract and the AS-IS Contract have been updated. While there are changes to both contracts, the AS-IS Contract is the most widely used contract in the market, so we will dive into the major changes that were made to it (we won’t be addressing all minor technical changes).

Paragraph 1, which addresses personal property, has minor changes. While the FAR/ BAR contract previously conveyed “all existing fixtures,” smart home devices that have become popular in recent years were often a subject of contention between buyers and sellers. The 2021 contract changes address this hot topic by including them in section 1(d), Personal Property. These newly added items include thermostats, doorbells, television wall mounts and television mounting hardware, mailbox keys, storm protection items, and hardware. One personal property item, intercoms, was deleted in this revision. While popular in the 90’s, intercoms have been replaced with smart technology and so this outdated item was removed.

The Closing Date section, previously Paragraph 4, was retitled to “Closing” and some slight modifications worth mentioning were made. “Closing” is now defined as, “when all funds required for closing are received by Closing Agent and Collected pursuant to STANDARD S.” It also requires that all closing documents be furnished to each party. This is an important change as, previously, if buyers wired money late in the day, the file would “fund” the following day. This was a gray area and was more common than it should have been. The changes to this version of the contract now dictate that a closing without collected funds does not fit the definition of closing. A default will result if funds are not in, along with all signed documents.

Paragraph 5 received some welcome clarification to an easy-to-abuse section of the contract. Previously, a buyer was allowed to automatically extend a contract for up to 10 days if funds from the buyer’s lender were not available due to Consumer Financial Protection Bureau (CFPB) delivery requirements. This provision was meant to protect a buyer from default due to governmental guidelines — not to automatically extend for a buyer’s or lender’s failure to comply with timelines set forth in the contract. The revision to the contract this year states that, in order to extend the closing date, the buyer must have loan approval and the lender’s underwriting must also be complete. The modification also reduces the extension period from 10 days to a maximum of 7 days. Note that these changes only apply if paragraph 8(b) of the contract is checked. If a buyer is obtaining a loan but box 8(a) is checked, this section does not apply.

The Assignability section in Paragraph 7 received a minor tweak by adding a new default. If parties fail to select whether or not the contract is assignable, the contract will NOT be assignable. This particular change, while minor, eliminates contract corrections down the road if a box is inadvertently left empty.

Perhaps the most important changes were made to Paragraph 8(b), the section that addresses financed offers. In previous versions of the contract, a loan approval was deemed obtained without receipt of an appraisal; a buyer could still cancel and receive a refund of their escrow deposit if the results of the appraisal did not meet the terms of the loan commitment, even if the loan was already approved. The updated contract addresses this issue and now specifies that two tasks be completed within the loan approval period: the buyer must obtain loan approval of financing and an appraisal satisfactory to the lender must be received. This change was a necessary one, in my opinion. From the seller’s perspective, it removes ongoing uncertainty and the possibility that an insufficient appraisal could still derail the transaction, even after loan approval. In today’s market where demand is higher than supply and prices are rising faster than appraisal values, this change is vital to protecting sellers as they select the offer that best fits their needs. It is important that this definition change be considered when writing in the time for approval. Check with the lender and find out when a conditional approval and appraisal can be expected, then complete this contract provision accordingly.

There are some other slight changes to the loan approval paragraph, such as making it clear that if a lender’s loan approval requires a buyer to sell their current home, it is not considered a loan approval unless Rider V (Sale of Buyer’s Property Contingency) is attached. Another modification was made by adding that “diligent effort” to obtain the loan approval includes paying for the appraisal and other fees related to financing. This was not a requirement under the most recent contract and buyers were previously able to terminate the contract without ordering an appraisal. This loophole is now closed and buyers must truly use diligent effort to fulfill the contract.

In previous versions of the contract, buyers were required to keep the seller and broker fully informed about the status of their loan application and loan approval, and it provided consent for that exchange of information to occur. The new verbiage that takes effect on November 1st states that the buyer shall, “upon written request,” keep the parties informed and it includes the consent to disclose the “status of Buyer’s mortgage loan application, loan processing, appraisal, and Loan Approval, including any Property related conditions of Loan Approval.” Now, the seller (or seller’s representative) must make a written request to be kept fully informed throughout the process. Our transaction procedures at Creegan Group have been updated to make this a mandatory task that we complete immediately upon contract acceptance. Doing so enables us to be kept fully informed and puts the burden on the buyer (or their representative/Realtor) to share information that is vital to the transaction.

When a buyer fails to obtain loan approval, he now has to inform the seller, in writing, prior to the expiration of the loan approval period. This is a deviation from the previous contract that required buyers to “promptly” inform the seller of their failure to obtain loan approval. The revised section also allows buyers, if they are confident in their ability to obtain loan approval and proceed to closing, to deliver such notice to the seller and proceed to closing.

The language regarding escrow deposits and failure to obtain loan approval (or inability to timely meet the terms of the loan approval provision) was clarified. Now, if a buyer is unable to obtain loan approval, he may deliver written notice of termination prior to the expiration of the Loan Approval Period and will receive a refund of his escrow deposit, provided he is not otherwise in default of the contract. While this is not a material change to the contract, the clarification makes clear the contract requirements, in order to minimize disputes arising from this section, especially for buyers who obtain loan approval but cannot otherwise meet the terms of the approval.

Section 8(b) changes continue in section 8(b)(v), which states that a financed buyer’s contract will automatically convert to a cash transaction as if Paragraph 8(a) had been selected as of the Effective Date, “if Buyer fails to timely deliver any written notice.” This is an important change to be aware of and makes providing notice of loan approval critically important. A buyer would lose all financing contingencies upon the failure to deliver the loan approval timely. The only exception, and not a change from the previous version, is that a seller, within 3 days of the expiration of the loan approval contingency, may terminate the contract if the buyer did not timely deliver a loan approval in which even the Buyer would receive their escrow deposit back. We see this happen most often where sellers have a backup contract that has better terms than the contract they are currently a party to, and they use this oversight of a buyer to remove them from the contract and accept the higher backup offer.

Section 9 of the contract discusses closing costs and some noteworthy changes were made. Charges for FIRPTA withholding and reporting are now set forth as responsibilities of the seller. The survey due date was changed from being due on or before Title Evidence Date to 5 days prior to closing. Currently, surveys are rarely received prior to this deadline, so the modification represents a material change. Also, surveyors will now have the ability to use title work to complete the survey, thereby revealing any existing easements or exceptions on the property sooner. Section 9(f) contains a change I have long been hoping for regarding the payment of special assessments. Many municipalities, such as the City of Orlando, have recurring special assessments that cannot (and should not) be pre-paid. Previously this section was an area of conflict for buyers and agents who did not understand the assessments and their repetitive nature. The new contract makes clear that even when option B is selected, Option A would apply to any recurring assessment that cannot be pre-paid.

In 2019, FSS 553.79 was modified to include language stating that “a local agency may close a building permit 6 years after the issuance of the permit, even in the absence of a final inspection, if the local government agency determines that no apparent safety hazard exists.” While this is not a change to the contract, it is still a statute that most buyers/sellers/Realtors remain unaware of. Section 10 now requires a seller to disclose permits that were “otherwise disposed of pursuant to section 553.79 F.S.” This change is one to note and be cautious of as this could result in legal action after closing if a permit, even if disposed of per Florida Statute 553.79, was not properly disclosed to a potential buyer in a timely fashion.

Paragraph 18 received an important change to time periods and how they are calculated. In my experience, I have found that many people struggle to understand the calculation of time periods, so this contract change seeks to simplify them.

Calendar days have always been used to calculate time periods but, prior to this change, if a contract date fell on a weekend or national holiday, the deadline automatically extended to 5 p.m. on the following business day. This change removes the 5 p.m. portion of the deadline and now simply states that it extends to the next business day (11:59 p.m.). It also clarifies that if a national legal holiday is observed on an alternative day, the deadline will be the day following the holiday’s observance.

Force Majeure received an update thanks to COVID-19 and the other unfortunate national events that occurred over the past two years. Force Majeure now includes civil unrest, governmental actions, and mandates, government shutdowns, epidemics, or pandemics. The day Force Majeure will be deemed to have begun will be the first day the effect of the event “prevents performance, non-performance, or the availability of services, insurance or required approvals essential to Closing. “ The purpose of Force Majeure did not change; it allows the extension of time periods due to any event that falls under the expanded definition of Force Majeure.

Section O was only modified slightly but contains an important change to note. Emails and facsimile transmissions are included as acceptable means to provide notice, but text messages were purposely omitted. Text messages are often not conducive to permanent record retention, as many devices self-erase text messages after a defined period of time. The omission of text messaging as a means of communication is therefore the right move here. Legally, text message communication as a whole has not been deemed a proper method of legal delivery, so the omission in the updated contract is not surprising.

As you can see, there were a number of changes made to the Contract this year and many of them are significant in nature. This article is not intended to provide legal advice and I would recommend that you consult your real estate attorney to get personalized guidance on the implementation of this new contract into your business or use as a buyer or seller. I did think it was important to provide this summary of some of the most impactful updates and I want to stress that understanding the changes can make all the difference in a real estate transaction, whether you are a customer or a Realtor.

Written by Chris Creegan and Melinda Stewart