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Ignoring Fine Print Can Lead to a Fine Mess



By Ruth Hepner
Special to theWashington Times

Consumer-protection laws and more balanced real estate practices adopted in the past decade give home buyers better protection than ever before. They should still read the fine print, however.

Among recent good news for buyers is a new law in the District that requires a disclosure statement by sellers about the condition of a home. It is tougher than disclosure laws passed earlier in Maryland and Virginia.

Among the bad news is retention of several clauses unfavorable to buyers in a new preprinted contract that Realtors around the region began using earlier this year.

The new D.C. law took effect April 20, although fine-tuning of the disclosure form delayed its implementation, says Diane Ruggiero, executive vice president of the Washington, D.C. Association of Realtors. Her association is holding educational seminars on the law for real estate agents, she says.

The law is tougher than those in Maryland and Virginia, she says, in that sellers in the District cannot choose to opt out of disclosing defects by signing a disclaimer instead and selling the house “as is.”

“If people can opt out, there’s no consumer protection,” she says.

Another seminar, to be held Thursday by the Northern Virginia Association of Realtors, will address pitfalls for buyers in the preprinted resale contracts Realtors use. That seminar will he conducted by Alexandria real estate lawyer Beau Brincefield.

“The thing that I’ve noticed over the past 20 years is the progressive movement of the contract form to being fairer to home buyers,” Mr. Brincefield says. “Over the last 10 years, there has been a tremendous growth in buyer brokerage.”

But, he says, there are still some provisions that buyers and agents who represent them need to amend before signing a contract.

“Within the next couple of years, I predict you’re going to see buyer agents getting sued because they did not try to negotiate changes in provisions in the standard [resale] form,” Mr. Brincefield says. “If you’re holding yourself out to be a buyer agent and you don’t at least try to make changes . . . that protect the buyer’s interest, you are exposing yourself to some significant liability. I suspect this is the reason the Northern Virginia Association of Realtors asked me to conduct this seminar.”

Buyers today generally rely on a home inspection to determine that everything is in good shape.

He says he conducted the same seminar recently for the Alexandria Bar Association.

Among provisions Mr. Brincefield recommends buyers change are these:

In the financing provision that sets the mortgage interest rate is “that very naughty little clause in there” that says “or prevailing rate at time of settlement,” he says. Leave that in and “you could have a spike in the market. A buyer could have to take a 10, 11 or 12 percent loan instead of the 7 percent they thought they would get.”

In the provisions that describe circumstances under which a buyer will be held in default, the preprinted contract lists such things as a buyer “does not have the money to settle” or “having qualified becomes unqualified” or “for any reason whatsoever fails to consummate the settlement.”

“Those could happen through no fault of the purchaser,” Mr. Brincefield says, in a case in which “a borrower or spouse is killed or seriously injured” or the “purchaser loses his job or has an immediate family emergency.”

In a resulting default, he says, “a buyer could lose his deposit and be sued for damages because in a declining market he could be held responsible if the seller can’t get as good a price in a sale to someone else if the value of a property went down.”

Buyers, he says, “should change the default provision to say that if they can’t settle through no fault of their own, then the contract would be canceled . . . Who bears the economic loss is an issue that can be negotiated. The buyer suffers the loss in the standard contract.”

Another standard provision says “the house will be in the same condition as at the time of the contract and the appliances will be in working condition” Mr. Brincefield says. “What I always do is say all of those things will be in proper working condition and that the roof and basement are free of leaks.”

Mr. Brincefield noted that builder contracts — for the purchase of new homes — are different, and that they pose “a much greater challenge to buyers.”

Meanwhile, some real estate agents caution against changing the contract at all.

Rosie Harsch, a top producer with Long and Foster’s Tysons Central office, says she rarely changes the provisions in the preprinted contract because “we’ve been cautioned by different attorneys not to be changing that language too much . . . We’re not attorneys. We have our own attorney at Long and Foster, and also access to a settlement attorney.”

About the condition of the house, she says buyers today generally rely on a home inspection to determine that everything is in good shape.

Mrs. Harsch says in Virginia “most sellers do the disclaimer” rather than fill out a disclosure form. “If I were selling my house, I would not do a disclosure” she says. “The questions are technical. ‘As is’ is the trend.” She says sellers shouldn’t sign the disclosure form “because of the liability of things you don’t know.”

Buyers can discover defects in a house and get out of the contract by making it contingent on a successful home inspection, she says.

Patricia Vucich, an agent with the Chevy Chase Circle office of RE/MAX Capital Properties, says most sellers sign the disclosure statement in Maryland and will have to in D.C. under the new law.

She says buyers or sellers can amend the provisions in the preprinted contract, but she recommend they leave it alone.

“I suggest they seek legal advice” if they want to change it, she says, because the contract was drawn up by lawyers for Realtor associations and has “interrelated wording.”

Miss Vucich, a member of the Contracts and Clauses Committee of the Greater Capital Area Association of Realtors, says what she sees more often is “agents hand write in a clause or two” such as one “where a light fixture did not convey and we asked the seller to provide $200 in closing costs instead”

Another example, she says, is one in which a buyer might make a contract contingent on such things as “third-party approval by a lawyer or gift funds from grandparents or a bankruptcy court.”

Mr. Brincefield suggests such a third party approval clause is a wise move. He says a buyer should place a clause in the contract to read thus: “This contract is contingent upon review and approval by _________”and fill in the blank with the name of any person the buyer wants to review the property.

A buyer “can put in ‘my mom’, ‘my CPA’, ‘my financial adviser’, ‘my rabbi’, ‘my priest’, ‘my sister,’ . . . in that blank,” he says.

“That is the most powerful tool a home buyer can use,” he says, noting the buyer can put anything in there and not be bound by the contract. “The standard form [was] biased in favor of the seller,” he says, and while it has become more fair to the buyer with revisions in recent years, the builder contracts “have gone in the opposite direction.”

At worst, Mr. Brincefield says a new-home buyer could risk losing the house with no recourse, even after settlement, if a builder runs into financial problems before completing a subdivision.

Reprinted from The Washington Times, Friday May 14, 1999.

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