The Elegant Augusta Real Estate Blog

Lydia Taylor January 21st, 2008

News Flash: Georgia decided to change the Purchase and Sell Contract, effective January 1st, 2008…

As a Realtor, I see changes to forms often and it is usually nothing to alert the public on, because they have changed wording or a blank has moved. However recent changes by the State of Georgia to real estate contracts have a significant effect on both sellers and buyers. Some of the old standards of what closing costs can be paid by the seller and buyer have changed, as well as inspection, mortgage, and appraisal contingencies.

Closing costs in the old contract were pretty generically handled and even if the buyer did not request closing costs, the seller still had to pay for the deed transfer tax. That is no longer true. Now the buyer pays the deed transfer tax! The new contract states exactly what costs the buyer has to pay, and even when closing costs are requested from the seller, it is very specific as to what items the seller can contribute funds to. Under the old contract, buyers could request an amount from the seller to cover closing costs. That money was applied to pretty much anything that dealt with closing, including but not limited to: lawyer fees, taxes, pre-paids, escrow establishment charges, surveys, and insurance. The new contract is much more specific as to what costs it will allow that money to be used for. Any money left over, not used for the specific items in the list, remains with the seller. So gone are the days that the buyer can foist all closing costs on to the seller. Granted all things are negotiable, however it will take a savvy Realtor to point that out and make it a part of the offer from the very beginning.

Contingencies for inspections, mortgages, and appraisals are a little different then they used to be. In the old version of the contract, everything was included and they all could have different deadlines for completion. Now there is only one time limit for all activities, and that time period is for the property to meet the appraisal price, undergo inspection, and for the buyer to complete the mortgage activities. All these things must get completed in what is termed ‘the due diligence period’.

What this means for home buyers:

The bank has to get the appraisals done sooner. Which is nice! (Reputable and good mortgage lenders tend to do this in a timely fashion, however fly-by-night mortgage companies always wait until the last minute, which holds up closing. They can no longer get away with that stunt.) The appraisal contingency is now in a separate addendum that has to be added to the contract. Also, during the due diligence period if a buyer wants to get an inspection and negotiate repairs, this has to be done within the the specified period of time and there is a separate addendum for that. There will be some closing costs you simply cannot avoid. Lastly, buyers must get their financing in order before the due diligence period runs out. If they find out that they cannot meet the requirements (inspection, appraisal, or mortgage) to purchase the home, they can walk away during the due diligence period. That’s a good thing. However, if they discover that they cannot meet the requirements to purchase the home after the due diligence period has elapsed, then they lose their earnest money to the seller!

What this means for sellers:

When the home is under contract, the home will no longer be listed as pending until after the due diligence period has expired. That time is now termed as an ‘active contingency period’. The house is not technically off the market. You can’t walk away because someone else has made a better offer, however if the buyer does walk away then your house has not lost marketing time being a pending sale. One of the biggest pitfalls for sellers is that buyers now have an open pass to walk away from the deal during the due diligence period. Also, because so much has to be accomplished during that time period, the typical 10 days will now increase to 15-25 days for the due diligence period. The good news is that buyers have a set period to get their financing in order, and a severe penalty in your favor if they don’t. Lastly, you are protected from a portion of the closing costs.

My take:

The goal of the State of Georgia was to streamline the process and help everyone to be better protected in the process of purchasing a home. I have already worked with the new contract and I think they took some steps in the right direction. I think once everyone becomes acclimated to it the new contract will create better, cleaner deals, hopefully take out some classic Realtor mistakes, and help all of our buyers and sellers in the purchases and sales of their homes.

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