By Beau Brincefield
The NVAR Regional Sales Contract Form.
The Northern Virginia Association of Realtors® regional forms dominate the Northern Virginia market for the purchase and sale of previously owed homes. Homebuyers should be aware of important points in the these standard forms.
Parties. Identify all of the owners of the property and their relationship(s) with one another. It matters. Have all of the owners been named in the contract? A contract lacking the signature of the spouse of the named seller may not be enforceable.
Real Estate Agents. Does your client have a Buyer’s Agent? Make sure that your client knows the answer to this question and why it is important.
Which version of the forms? There are significant and substantial differences between the latest version of the contract form (dated 9/99) and previous versions. This article is based on the latest version.
Section 3. Equipment, Maintenance and Condition. This section covers appliances, heating, cooling, plumbing, electrical systems and equipment, smoke and heat detectors. Are there any other systems that should be mentioned? Some of the most common problems that purchasers have with homes are leaky roofs and basements. Add the following provision: “The seller warrants that the existing roof and basement are free of leaks.”
Section 5. Deposit. Will the purchasers earn interest on their good faith deposit? At current rates of interest, a purchaser who makes a $1,000 deposit and settles 60 days later would lose only about $10. However, if the purchasers can make 12 percent a year on their money and they have to deposit $10,000 for three months until settlement, they’re losing $300.
Section 7. Financing. Never let your client agree to pay interest at the “market rate available”. Either strike that phrase or add: “not to exceed _______________ percent ( ____________ %)”.
Section 9. Loan Application and Approval. The default provisions in Section 9C puts the purchaser in default even if the described events occur through no fault of the purchaser. Suggested change: “Purchaser shall act in good faith to avoid the events of default described in Section 9C. However, if any of such events occurs due to circumstances beyond Purchaser’s good faith control, it shall not constitute a default.”
Section 12. Well and Septic. Well contaminants are limited to coliform bacteria. Are there other contaminants (e.g., arsenic) that the purchaser should be concerned about? The seller’s obligations are limited to defects shown in the well and septic certificates. Nothing in the Contract covers piped water supplies or sewer connections.
Section 13. Termite Inspection. The seller gives no warranty, and the seller’s obligations are limited to defects shown in the inspection report.
Section 16. Title. In the middle of the paragraph, there is a sentence that begins “Title may be subject to … if any;”. Add this clause: “which do not adversely affect the use or enjoyment of the property for ordinary residential purposes”
Section 17. Possession Date. If the date of settlement is of great importance to the purchaser, this section should be modified to say that settlement will occur no later than a specified date. Also, add “time is of the essence” language. Remember that, under contract law, unless you say that “time is of the essence”, it is not. (Time is made of the essence as to all terms of the contract by Section 9 of the Virginia Jurisdictional Addendum.)
- Remember, also, the concept of “material” versus “non-material” breach. Should you add a provision that any breach of any term of the contract shall be considered “material”?
Section 23. Attorney’s Fees. Note how the two sentences of Section 23 of the NVAR form distinguish between the rights of the “parties” (i.e., the purchaser and the seller) and the rights of the (real estate) broker.
- When is a party a “prevailing party”?
- Why should both the purchaser and the seller agree to indemnify the broker for costs of litigation, including attorney fees? Should not this burden fall only on a culpable party?
Section 26. Other Disclosures. A. Property Condition. Sensitize the purchaser to the significance of each of these exclusions. They are important. Always tell the purchaser about the potential impact of recorded covenants, conditions, easements and other restrictions, other potential land uses in the area (for example, roads or highways or other construction such as firehouses or commercial developments) and the risks of various hazardous materials. There should be a clear understanding between you and your client concerning the extent of your responsibility for investigating and/or evaluating each and every one of the issues specifically identified in Section 26A. How will your clients feel if one of these problems surfaces and you have not even forewarned them about the possibility of such a problem? Remember, these types of problems are not that unusual and, if one of them occurs, the buyers (and their new lawyer) will be looking for someone to blame.
Section 31. Addenda Checklist. Note that this is only a checklist. The text of the specified addenda needs to be attached to the contract (see below).
Section 33. Entire Agreement. Remember the legal effect of integration clauses. Modifications of the contract usually must be in writing and signed by the parties.
The NVAR Virginia Jurisdictional Addendum Form.
Section 1. Financing. Watch out for the “or market rate available” phrase again.
Section 5. Virginia Property Disclosure Act. Disclosure or disclaimer? The purchaser should always try to get a disclosure statement from the seller. If the seller won’t give one, it has to make you wonder why and cause you to be extra cautious in evaluating the physical condition of the property. Some judges will not grant a purchaser rescission, even where a seller has taken affirmative steps to cover up a latent defect.
Section 6. Possible Mechanics’ or Materialmen’s Liens. Obtain affirmative coverage from the title insurance company.
- Do you know how to review a title insurance commitment?
- Have you received and reviewed copies of all the items excluded or excepted from coverage?
- Did you get all endorsements to the commitment in writing before settlement?
- When will you (not your client, you) get the final policy?
- Put a tickler in your system for the due date.
- When it does finally come, review it carefully for compliance with the (modified) commitment.
Standard Contingencies and other Addenda
Section 1. Contingencies. Does the language cover all aspects of the contingencies? Who must give notice to whom, about what, when, and what happens after that?
- It is frequently hard to draft contingency language properly. Collect as many pre-approved contingency forms as you can so that, when you are faced with the necessity of drafting a contingency, you at least have some reliable language to start with. Whenever possible, you should have contingency language reviewed by an experienced real estate attorney before it is made part of the contract.
Section 1.A. Home Inspection. Always recommend an independent professional home inspection. With respect to home inspectors:
- Obtain and evaluate the qualifications of the person doing the inspection.
- Explain the exclusions and limitations in the typical home inspection contract.
- Get rid of the typical limitation of liability clause limiting the inspector’s liability to the amount of the inspection fee.
2C. Pre- or Post-Settlement Occupancy Agreements. You can’t cover all the essential provisions of a lease in a couple of paragraphs. Don’t try. Draft a separate lease agreement.
The cost of hiring an experienced real estate attorney to help protect a homebuyer in the purchase and settlement of a new home is usually no more than a few hundred dollars. Not having adequate legal representation at both the contract stage and at settlement can cost a homebuyer thousands of dollars, especially if unexpected problems develop between the signing of the contract and settlement or, even worse, after settlement, after all of the settlement documents have been signed and all money has been disbursed. There are few situations in which the cost/benefit ratio of dollars spent is more favorable for the homebuyer.
The above observations address certain specific problems with the typical sales contract for a resale home. The author has prepared a separate article on considerations for homebuyers in negotiating the typical contract for the purchase of a new home from a builder/seller.
Beau Brincefield is the senior attorney with the Alexandria law firm of Brincefield Hartnett Maloof & Paleos, P.C. These materials were developed by Mr. Brincefield for a seminar he presented for the Alexandria Bar Association.