by James G. Wargo (Spring 2019)
The Multi-Board Real Estate Contract 7.0 was recently introduced with a number of important changes over the previous 6.1 version of the contract. Below is a brief summary of the more significant changes that real estate brokers and attorneys should be familiar with are as follows:
Purchase Price and Payment. The 7.0 contract moves the “purchase price” provision in paragraph 3 of the 6.1 contract to paragraph 4 and modifies this heading to read “purchase price and payment.” The 7.0 contract also adds three new subparagraphs to this provision, including (a) Credit at Closing; (b) Earnest Money; and (c) Balance Due at Closing.
The 7.0 version also adds a new sentence regarding the disbursement of earnest money in the event of termination, which reads as follows: “In the event the Contract is declared null and void or is terminated, Earnest Money shall be disbursed pursuant to Paragraph 26.”
Fixtures and Personal Property at No Added Value. The “fixtures and personal property at no additional cost” provision of paragraph 5 of the 6.1 contract has been moved to paragraph 3 of the 7.0 contract and the heading modified to read “fixtures and personal property at no added value.”
Paragraph 3 of the 7.0 contract also expands the list of identified personal property items that may be transferred to the buyer by a bill of sale at the closing, including the following: (1) water heater; (2) wine/beverage refrigerator; (3) wall mounted brackets (AV/TV); and (4) hardscape.
Attorney Review. The 7.0 version makes significant changes to the “attorney review” provision now found at paragraph 10. Both the 6.1 and the 7.0 versions contain four options that may be exercised by the respective attorneys for the parties within five (5) days after the date of acceptance, including subparagraphs (a) through (d).
Under subparagraph (c) of the 7.0 contract, if written agreement has not been reached by the parties with respect to all the proposed modifications, either party can terminate the contract after the expiration of ten (10) business days from the date of acceptance. The 6.1 version requires the notice of termination to be commenced within ten (10) days of the date of acceptance.
Subparagraph 10(c) of the 7.0 contract also adds new language that states that any proposed modification “shall be conclusively deemed a counteroffer notwithstanding any language contained in any such proposal purporting to state the proposal is not a counteroffer.”
Subparagraph (d) of both the 7.0 and the 6.1 versions similarly allow either party to propose a suggested change to the contract. To the extent the parties are unable to agree to the suggested change, neither party may declare the contract null and void and the contract will remain in full force and effect. The 7.0 contract adds language to subparagraph (d) that states that any proposed change to the contract that references subparagraph (d) will not be considered a counteroffer. To the extent a proposed change does not reference subparagraph (d), it will be deemed to be a proposed modification under subparagraph (c).
Professional Inspections. The 7.0 contract makes several significant revisions to the inspection provisions of the contract. Specifically, the 7.0 contract adds a new “waiver of professional inspections” provision at paragraph 11. This new paragraph 11 allows the buyer to waive the inspection provisions of paragraph 12 of the contract.
Both the 6.1 and the 7.0 versions authorize the buyer to conduct any of the following inspections: home, radon, environmental, lead-based paint, lead-based paint hazards or wood-destroying insect infestation. However, paragraph 12 of the 7.0 contract expands the right of inspection to include “any other inspections desired by [b]uyer in the exercise of reasonable due diligence.” The 7.0 contract also includes language that the seller agrees to make all areas of the property “accessible for inspection(s) upon reasonable notice and to have all utilities turned on during the time of such inspections.”
With respect to the scope of repairs covered under the inspection contingency, subparagraph 12(a) of the 6.1 contract provides that the buyer agrees that “minor repairs and routine maintenance items of the Real Estate do not constitute defects and are not part of this contingency. The fact that a functioning major component may be at the end of its useful life shall not render such component defective for purposes of this paragraph.”
Subparagraph 12(a) of the 7.0 contract similarly implies that minor repairs are not included under this contingency with the following language: “The request for repairs shall cover only the major components of the Real Estate, limited to central heating and cooling system(s), plumbing and well system, electrical system, roof, walls, windows, doors, ceilings, floors, appliances and foundation.” However, the 7.0 contract deletes the language referencing a functioning component near the end of its useful life. As such, the 7.0 contract contemplates that a functioning component near the end of its useful life may constitute a defective component under the inspection contingency.
The 7.0 contract also adds language at the end of subparagraph 12(a) which provides that if the buyer requests credits or repairs for items that do not constitute major components of the property, the seller may terminate the contract and direct the return of the buyer’s earnest money. This revision further confirms that minor repairs and other routine maintenance items may not constitute a basis to terminate a contract.
The 7.0 and the 6.1 contracts also differ on when the notice of termination can be given as a result of an unresolved inspection issue. Under subparagraph 12(b) of the 7.0 contract, either party may terminate the contract if after the expiration of ten (10) business days after date of acceptance a written agreement has not been reached by the parties with respect to the inspection issues raised by the buyer. Under subparagraph 12(b) of the 6.1 contract, the right to terminate regarding any unresolved inspection issue must be given within ten (10) business days after date of acceptance.
Financing/Mortgage Contingency. The 7.0 contract includes several changes to the mortgage contingency provisions contained in the 6.1 contract. For starters, the “mortgage contingency” heading in paragraph 8 of the 6.1 contract has been renamed “financing” and moved to paragraph 7 of the 7.0 contract.
The 7.0 contract deletes the “Intent to Proceed” provision under the 6.1 contract and requires the buyer to provide written evidence from the buyer’s lender confirming that the buyer has received loan approval not later than forty-five (45) days after the date of acceptance or five (5) business days prior to the date of closing, whichever is earlier. Under the 6.1 contract, the buyer is initially required to provide written evidence from his or her lender that the buyer has provided to the lender an “Intent to Proceed” as the term is defined in the rules of the Consumer Financial Protection Bureau by the date inserted by the parties. The buyer must also provide written evidence of a mortgage commitment prior to the date inserted by the parties. If no date is inserted, the mortgage commitment must have been provided not later than sixty (60) days after the date of acceptance.
Seller’s Representations. The “seller representations” provision in the 7.0 contract requires the seller to disclose whether any improvements have been made to the property that were not included in the most recent tax assessment and whether there are any improvements to the property that may be eligible for a home improvement tax exemption.
In summary, real estate brokers and attorneys that work with the Multi-Board Real Estate Contract should be familiar with the changes to the 7.0 contract and should evaluate their current processes and procedures to ensure compliance with some of the more significant revisions to the contract.
If you are thinking of buying or selling residential real estate, the attorneys at Ottosen Britz can help.