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Questions and Answers on Real Estate Contracts in Georgia - 2008-08-31 |
Last week, we talked about changes in the widely-used GAR purchase and sale agreement. The following are some of the questions I often receive when talking about real estate sales contracts:
Q: Is there a "standard" contract for real estate in Georgia? If so, where can I get one?
A: Georgia law does not recognize any specific form. However, the Georgia Association of Realtors works hard each year to produce a set of forms for its members to use in helping the public buy and sell real estate.
While these forms are copyrighted by the GAR, its members are free to use them as they wish. Most active real estate agents and brokers are members of the GAR, and will likely be happy to share a form with you.
Q: Do I have to use the GAR form to buy real estate?
A: No, you are welcome to make an offer to buy using any form you wish. My advice is to use a real estate attorney to assist you, simply for your protection.
Q: Can I use the contract forms I bought at the office supply store?
A: Of course, but those forms are typically generic documents intended for a national audience. They may not suit your specific needs. That's one reason I recommend your attorney.
Q: Why do the contract forms need to change from year to year?
A: Some years they don't change at all. In other years, the forms are modified to reflect changes in the real estate industry. For example, many years ago, the GAR forms made no provision for an inspection of resale real estate. At that time, a formal inspection was a rarity. But today, almost every buyer chooses to have an inspection before they make a final decision to buy.
Q: So why would the GAR change from an inspection contingency to a "due diligence period?"
A: The wording of the old inspection clause attempted to limit the buyers right to withdraw by excluding things like cosmetic damages. In so doing, it often raised more questions than it answered.
By moving to an unquestioned inspection period, the seller now gives the buyer the right to withdraw for any reason, or even for no reason, if he chooses. After that period expires, the contract is considered to be much more binding.
Q: Can my real estate agent help me make an offer to purchase?
A: Yes, most agents undergo training on how to fill out the forms provided by the GAR, and they can usually answer common questions about how to best handle negotiations. But you must remember that real estate agents are not attorneys, and they are not allowed to give you legal advice. That is the second reason I always recommend that a buyer consult an attorney. Only a lawyer can give you advice on how to interpret and understand a real estate contract.
Q: How much earnest money do I need to give to the seller with my offer to buy?
A: Technically, earnest money is not a requirement of a binding contract in Georgia. The parties' mutual promises to perform can serve as sufficient consideration. However, most sellers in this market will want to see some tangible evidence of your commitment to buy their house.
I recommend a check for one thousand dollars, and I recommend that you ask your attorney to serve as "holder" of the funds in his escrow trust account. If your seller or his agent wants to be sure the check has cleared, they can call your attorney and get confirmation.
Q: Isn't it more common to allow the listing broker to hold the earnest money in their escrow account?
A: Yes, but attorneys in Georgia are also licensed to hold funds in escrow. I certainly don't have an objection to a broker holding funds, but somehow my attorney just feels better.
Q: Some agents suggest that on a higher dollar amount sale, the earnest money needs to be higher, if for no other reason than to reflect the size of the transaction. Do you agree?
A: If I were the seller, I would always want to hold as much earnest money as possible. Why not? There is no harm in asking for a large earnest money deposit. In addition, if the buyer breaches the contract, the GAR form specifies the earnest money as the amount that is agreed to by all parties as "liquidated damages," if the seller should decide to accept that amount.
But the reality is that if the buyer changes his mind, and decides he doesn't really want to buy the house, it is going to be extremely difficult to make him do so.
That's why I like the "due diligence period." It allows the buyer to completely satisfy him or herself that this is the right house. Once that period is over, the contract is much more likely to get to the closing table.
Q: Is there anything else we need to watch out for in the current GAR contract?
A: Know that the 2008 GAR contract does not include any financing contingency. So if you need the loan in order to buy the house, ask your agent or your attorney to add a special stipulation or addendum making your offer contingent upon your ability to obtain the loan you need.
That way, if your loan falls through at the last minute for some reason, you would not lose your earnest money.
As always, I recommend that you meet with your attorney to review any important contract before you sign it.
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