Q: Can you define in plain language what is a financing contingency?

A: A contingency in any contract is a circumstance or condition which must exist in order for the contract to be enforceable. In the case of a financing contingency, the buyer must be approved for the loan he needs or else the contract is not enforceable by the seller.

Q: What would happen if a there were no financing contingency?

A: The agreement would be considered a cash offer to purchase. You would be required to buy the house, or risk losing your earnest money.

Q: Last week, you talked about the contract promulgated by the Georgia Association of Realtors. Is that form widely used?

A: Certainly it is in Georgia. The National Association of Realtors estimates that 85 percent of all home sales are assisted by a broker or an agent, and I suspect that figure is probably about right in Georgia.

Since the vast majority of active agents are members of a local board of Realtors, it is natural to assume that those agents use the GAR forms as the basis for their sales agreements.

Q: Is a buyer free to hire his own attorney and can't that attorney draw up a contract from scratch?

A: Yes, but in reality, most attorneys familiar with real estate transactions typically employ the GAR form as a basis for their client's agreements. They may modify the language and add special stipulations, but most use the GAR form.

Q: Why is that?

A: First, the GAR forms are well written and anticipate many common difficulties encountered in sales situations. Second, it's because all the players in the sales transaction are familiar with that form. The lenders know it, the brokers know it, the lawyers know it, and everyone is comfortable with it, at least as a basis for an agreement.

Q: I would like to read the blank GAR contract form. Where can I buy a copy?

A: The forms are made available to all members of the Georgia Association of Realtors for their use. My advice is to find a local real estate professional and ask them if they will review the form with you.

While agents are not able to give you legal advice, they are typically trained in how to use the GAR forms.

Q: What is your concern with the financing contingency in the GAR contract form?

A: It is my opinion that the current financing contingency goes too far in requiring the buyer to reveal personal financial details to the seller in the event of a rejection of a loan application.

The seller does not need to know specifically why the loan was rejected. It is sufficient for him to know that the loan was pursued by the applicant in good faith.

Second, requiring the buyer to provide a letter "detailing all of the reasons for the denial" seems almost punitive. It simply represents another hurdle the buyer must overcome in order to obtain a refund of his earnest money.

Q: If a buyer is rejected at one lender, can he apply for another loan under the GAR contract?

A: Yes. The buyer is allowed to fulfill his obligation by applying for any other loan for which he may more easily qualify.

For example, if the buyer applied for a fixed rate loan at 6 percent and was rejected, he might then redirect his application for an adjustable rate loan that started at a lower rate and would more likely result in approval.

It is important to note, however, that the GAR form does require the buyer to apply for the "primary" loan detailed in the purchase agreement. That is in addition to any other loan the buyer might decide to seek.

Q: You suggested last week that the current language of the financing contingency makes it harder for the buyer to withdraw and get back his earnest money. Why would the writers of the form want to do that?

A: While it is impossible to know the motive behind the language, one of the attorneys I talked with suggested two possible motives:

* In most cases, it is the seller who actually pays the real estate commission, so it might be only natural to expect the language of the contract document to favor the seller, making it more likely that the buyer would try to purchase even if the loan was not approved; and

* If the buyer is allowed to easily terminate the agreement by way of loan rejection, there is no sale, and if there is no sale, there is no commission paid.

I acknowledge that there have been cases where the buyer has used the financing contingency to "weasel out" of a deal by failing to pursue the loan application or worse, by misrepresenting his financial condition.

But it is my opinion that such occasions are unusual. The vast majority of buyers do not make frivolous offers, then look for ways to get out of their obligations.

Q: Is there another way a nervous seller could satisfy himself of the prospective buyer's sincerity when considering an offer?

A: My suspicion is that the drive to make withdrawal more difficult is not being driven by sellers, but rather by brokers. Even so, if a seller (or his agent) wanted a higher comfort level with a buyer's ability to close, he could:

* require a brief loan pre-qualification phone call from the buyer to a friendly loan originator, who could determine quickly the likelihood of loan approval;

* require that the buyer supply a copy of buyer's three credit scores as obtained over the internet by buyer within 24 hours of contract acceptance. In today's world of home lending, credit scores play an increasingly important role.

* require a substantially increased earnest money, which would discourage financially weak prospects. Unfortunately, this strategy might very well backfire, and result in no prospective purchasers at all.

The bottom line is that the seller must share in the uncertainty of a buyer's loan application to one extent or another. Trying to eliminate that risk in the contract is simply not realistic.