Sale and Close Contingency and Close Contingency. What is the difference and how does each one work? Are they good for both parties and when should they be used? Can your contract be bumped for a better offer? When do you have to start due diligence?
In this episode we examine the terms of the Sale and Close Addendum and the Close Contingency in relation to the Central Carolina REALTOR Association contract and the Sale Contingency associated with the South Carolina REALTOR Association contract. I also examine the issues with First Right of Refusals and how it could actually be very bad for the seller.
Also, another episode of Gary's Good News Only!
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This is edition dirt with Gary pickin South Carolina's only podcast dedicated to the real estate agents craft. Hey, greetings and welcome back to another episode of The Greatest real estate podcast done by lawyer Blair Cato, which is probably because it currently is the only podcast done by lawyer Blair Cato, so it has to be number one, right? But anyway, thanks for tuning in for another episode edition dirt I'm your often opinion any but rarely wrong host Gary pickin, and I'm coming to you from deep inside the bowels of Blair Cato in sunny downtown Columbia, South Carolina. And as I understand, it's about to start getting hot. So hope you all enjoy the podcast while you're out walking or doing some yard work or something but do stay hydrated. So on this week's episode, I'm going to discuss both the Central Carolina realtors Association, as well as the state contracts addendums. on selling close contingencies. And because we're going to do both contracts, I'm gonna spend most of my time on the show today talking about these two addendums. So we'll probably only have time for this actual part of the show, as well as Gary's good news only, which is always good, because there's lots of great news going on with COVID right now. So I spent a lot of time on COVID because numbers are just plummeting, it really looks like the pandemic is almost over. But before we start, don't forget to follow me on Instagram and on YouTube. And if you like this podcast, please like us, share us and subscribe if you really want me to feel much better about myself. And boy, I'd like to feel better about myself, if you will go on that podcast and click that little button up there that says you like it leave a comment, I think we're over like 25 five star ratings on Apple. So the more of those I get, the better I feel. And somehow they say it makes a difference on how my podcast is marketed. So anyway, please do that. So I'm going to start today's show with the Central Carolina realtors Association contract addendum first because it's actually two different addendums. And what I really need everybody to understand is regardless if you are an agent in the Central Carolina realtors Association area and you use his or you use a state contract, because so many contracts are being written on so many different contract forms these days, you need to understand what's in both. And we need to understand also you don't need to be mixing them. So if you're using a state contract, you don't need to be using the Central Carolina realtor Association addendum even if you like it better, and vice versa. I'm seeing that a lot where I've seen ccra contracts, and then they attach a state form addendum. And we don't want to do that because there's certain provisions in the agenda that reference back to the contract. And so it's very confusing. And I think it creates a lot of issues. So you want to make sure that you're always using the addendum that goes with that contract and not switching them over. So what we're going to do today is we're going to talk about first ccra contract and we're gonna look at paragraph 16 of the ccra contract. And under paragraph 16, which is labeled additional contingencies. The first thing it says it is very important to understand this is that buyers failure to disclose the existence of contingency A or B will constitute a default on the contract and earnest money will be released to the seller, well, what are the contingencies? Well, one is the sale contingency, and B is going to be the sale and close contingency. So what it says is if you need to be under a sell or sell enclosed contingency, and you're not disclosing this, then that is default in earnest. money's gonna be released to the seller. So where would this happen? I see this happen a lot of times and a cash transaction. And what this is, is right now we have lots of multiple offers. And so in order to make your offer look better, you're calling it a cash offer. Where's the cash coming from? It's coming from the sell of your house. And so when you're asked to produce or evidence of good funds, what are you producing, a lot of people will give a settlement statement proposed settlement statement it says here is what the closing attorney has put together this will be from the sale of my house which will occur before I buy yours. And that situation you are 100% a sale contingency contract because in order for you to get that cash, you have to sell your house so attached to that contract needs to be a sale contingency Failure to do so it's going to put you into fall the contract and earnest money is gonna need to be released to the seller at that point. So let's discuss the clothes contingency. I like to go with this one first because that is a separate form. And I think this is easier. So as I stated earlier, the clothes contingency contract is a separate contingency from the selling clothes that's different from the state the state uses its own form that basically is a cell enclosed contingency enclosed contingency all in one. But in CCR a contract world we separated them into two separate closing contingencies. So what is exactly a closing contingency? A closed contingency says I want to buy your house. But in order for me to buy your house I must complete the sale of my house by doing a closing contingency contract. You are stating to the world that my house is under contract and it is scheduled to close before I buy yours. This isn't a situation where I have a house I have to sell and it's not under contract. No and I close contingency contract. The contract is already written it's already been accepted and you are under con trying to sell the house prior to the closing date in this contract and what you're trying to buy. It's important when you look at the closing contingency form to look at paragraph two. Paragraph two says the contract is contingent on the completion of the closing of the sale of buyers property. That's what makes it the close contingency is very plain language, very well written is very straightforward. buyer has accepted a non contingent contract other than financing or appraisal on the property. So in order to use a closed contingency, you could not have accepted a contract that has other contingencies such as that contract is contingent on clothes, or that contract is contingent on selling clothes, or that contract is contingent on me getting a job in Columbia, South Carolina or Greenville. And moving to the area, the only contingency that the contract the buyer can have on their house is financing and or appraisal, your two basic standard contingencies, all other contingencies have to be gone. Now the due diligence period or repair negotiation period has to be completed or waived owner for blind date. So this allows the buyer to write in here when the due diligence of that contract the one on their house that they're selling, when that will be completed, or whether it has been completed. Some people mess this up and think they're talking about the new contract the contract in which the buyer is buying the property. No, what we're talking about here is what the buyer is selling. So as a buyer, if I'm buying your house and I'm selling my house, I have to disclose that I do have a non contingent contract on my house. financing and appraisal are the only contingencies. And my contract has a due diligence period. But it's either already completed or it will be completed on this date. Now that's quite different than the selling close contingency and moving from selling close to close. Now in order to move from selling close to close, that due diligence period has to be completed. So while the difference, the difference here is because this gives the seller the opportunity to make informed consent and informed decisions. And this situation you're disclosing to them that the house is under contract, but it hasn't completed due diligence. And you're allowing the seller at this point to decide whether I want to accept your contract or not. Under the sell and close they've already accepted your contract and you're trying to move to a sale contingency which has better power, meaning that it cannot be trumped for other contracts. And we'll discuss that a little bit later. So in order to let you move from a sale and close to a close, you have to have already finished that because the seller is not afforded the opportunity to decide whether they want to allow you to do so or not, you have a right to do so unilaterally. So we'll talk a little bit more about that. But it's very important to understand that is a major difference. And to understand that a lot of people fill this part of the contract out incorrectly because they think this means a due diligence on the house in which the buyer is buying and not the house in which they're selling. But that is a major point that we have to understand under the paragraph two. It also says that the buyer seller can continue to market seller's property for sale, but they can only accept offers as backup offers. So under a sale contingency, a seller can accept backups, but they may not bump you out for a better backup. It doesn't matter if somebody comes forward with a backup offer this for more money, less closing times cash, whatever it is, under no circumstances can you Trump that original offer, you've accepted this one here for a better offer, you may accept them as backup offers. And that's important, because in today's market and multiple offers, agents are telling me they're accepting multiple backup offers. In fact, I had Lisa Harris on the show a couple of weeks ago. And she talked about how she accepted five backup offers. Because the first one failed due to financing and the second one failed inspections. The third one under already bought a house and forth with us I didn't want it. So she got to the fifth offer and that one wound up closing. So sellers can accept backup offers, but they may not beat out the offer that's already under contract in this situation. If for any reason the buyers contract fails on the sell of their house, then the buyer has got to notify the seller within one business day. And within that notification period, they either have to remove the contingency with written verification saying I can still buy your house and the financial institution has to confirm that or they have to move back to a bot to a sell and close contingency inside the new agenda. If they can't reach an agreement as to this, then the buyer or the seller can no void the contract and artists money's gonna be released back to the buyer. And the last thing to understand about a sale contingency is in the contract, any timeframe that you have it for due diligence for applying for loans, for doing inspections for doing appraisal, whatever the timeframe is in the contract, it starts immediately that is different than a sell enclose contingency which they don't start until you move to a closed contingency but under a closed contingency. Every single timeline starts upon ratification of the contract. Now what's my opinion about the sale close contingencies? I think the cell can close contingencies a very fun contingency. I think most buyers in our market do have to sell a house in order to move forward. I think a lot of buyers are not disclosing that which does put them into If the seller finds out, so let's talk about the risk risk for seller is the buyers contract fails. Unfortunately, this is happening where the buyer is going to buy your house, their sale contract fails, and so therefore they don't, can't move forward. So that is a risk to the seller. The other risk to the seller is that if they aren't disclosing a sale contingency, and they do have to do in fact, sell the house, they find how a seller is going to find this out is that when you go to ask for I need a letter from the lender, saying why they cannot qualify for the loan. The question often is, is this because they cannot sell their house and Linda says yes, it's because they couldn't sell their house, they would have to mortgage payments, now we're bringing in a default, because they failed to disclose that the risk for buyers and this is it the sale falls through, then they're going to lose the house that they want. So when they make the house contingent on the sale of their house, obviously, if their sale falls through, they're not gonna be able to buy because now they're gonna move back to a selling clothes. course in most situations, that's going to be the case anyway, because if they can't sell the house are not going to be able to sell it anyway, we are seeing a lot more reverse contingencies. Now. What Tripp Davis over at Palmetto mortgage told me that the day is that he's seeing reverse contingencies where it's contingent on the seller being able or find a house before they sell their house. So we're seeing these double contingencies. But we're also seeing buyers not do contingencies on sale contingencies. But rather, they're going ahead and buying a house and closing that house as a second home. And then they put their house on the market for sale. And after that happens, then they come and put a big chunk of change down on their mortgage balance, and they're having the loan recasted. So that is certainly a strategy we're seeing. But in my opinion, I think the sale contingency as a fine contingency. And something that needs to be disclosed more often I really a lot of buyers are overlooking this and not telling the truth of their house is contingent on the sale of their other home. Now that moves me over to the ccra closing sale contingency. I call this the living on a prayer contingency. This is like that Bon Jovi song living on a prayer, you're really just prayer shifting. So what is Excel enclosed contingency, this says I have a house for sale, you want to buy my house, you have a house you have to sell before me before my mind, you have absolutely no contract on your house. And so now instead of me praying that somebody shows up to buy my house, I'm now praying that somebody shows up to buy your house. And so really, you're just prayer shifting. And I don't know that it really is a great contract. Agents sometimes disagree with me on this. But quite frankly, I think the closing sale or selling clothes contingency whichever way you want to call it is really a worthless contract contingency. I not sure I would ever accept a selling clothes contingency on my house, because basically, you're telling me the only chance you're ever going to have a buying my house and you've got to sell yours. And yours isn't even under contract. So I'm not a big fan of that. So looking at paragraph two of this cell enclosed contingency. It says the contract is contingent on the sale and closing of the buyers property no later than the closing date agreed into paragraph seven of the contract. So what we're saying is I've got to sell my house and get it closed. Before the date that I put in the contract to buy your house says most people are writing contracts to close in 30 days, think of the heavy lift that is they don't even have a contract on their house. But somehow they have to have their house under contract and get it closed. All before that 30 days in which to buy your house, I don't know that that happens very often, they also have to disclose the property address in which they are trying to sell. So at a minimum, the real estate agent should do some research on that property and determine if it's a neighborhood where the properties are selling very quickly what price point it is, how long it's been in the market, if it's already on the market, and other contracts falling through. And they should be doing some research to find out how legit of a chance the buyer is going to have of getting their house under contract and selling it and under what timeframe. And I would say that under paragraph seven of the contract, if they're putting 30 days, it's very unlikely it's going to happen. They need to be putting 60 or 90 or 120 days, this can work in bad markets where it's very difficult to sell houses. And it does make everybody feel good to at least know that these people want to buy my house. And these are the terms of which we're going to do it if they can get their house sold. So it's kind of a feel good agenda. The other thing the buyer has to disclose is, is the house under a listing agreement already and if so with which agent. And that's good so that the agent representing the seller in this situation can pick up the phone and call the buyer's agent and say hey, on the sell of the house this buyer is trying to do what's the status how are we looking and the that agent may be able to disclose certain things as allowed by the seller. Don't forget your confidentiality rules, by the way on that. As far as backup offers goes, the seller may continue to market the seller's property and can't accept another offer under certain circumstances. How this works is if I have a sell and close contingency for the purchase of your house, and you receive another sell and close contingency my selling clothes contingency stays in first position, you cannot bump me out a first position even if the offer is for better terms. More money, shorter term for turnaround time. You like that other house and the chances of that other house selling it doesn't matter. I'm all He's going to stay in first first position. However, if you receive an offer that is better than a selling clothes contingency, meaning it's either a closing contingency or non contingent contract, you may accept that offer, even if it's for less money, less terms, worst terms longer timeframe, whatever reason. That's different than the sale contingency under a sale contingency. You may not under any circumstance bump that contract but in this situation if you receive a better offer, and a better offer, again is defined as something that is not a selling clothes contingency. You can accept that regardless of the conditions or terms in that contract. If the seller does accept a better offer, than this selling closed offer then becomes a backup offer. If the buyer elects to remain in backup position, the buyer also may just terminate the contract and get their earnest money back. Now failure to remove the contingency by the close date and contract paragraph seven, the contract will automatically become null and void unless both parties agree to extend it. If the contract voided earnest money is going to be released back to the buyer. The timelines do not start until a closing sale contingency moves to just a close contingency. So until you get a contract on the house that is completed due diligence, you do not have to begin any inspections You do not have to do any due diligence, you do not have to do any lender requirements, the contract basically is on hold until you move to the close contingency. Now how do you move to a close contingency once a buyer accepts a contract for sale on their property with all contingencies either removed or waived other than financing an appraisal and the and the due diligence period has been completed or repair negotiations have been completed. And the closing is going to occur prior to the date set forth in paragraph seven of this contract, buyer must provide written notice of the acceptance to the seller, I get a contract and and it's not contingent on anything else other than financing an appraisal. And I complete the due diligence. Once I complete that due diligence and repair negotiation, I need to immediately notify the seller, hey, I'm moving to sell contingency. You do not have to sign another form. You don't have to go in and redo this contingency form, it automatically flips over to the sale contingency that you have to complete the due diligence and repair negotiations. And that this is different than when you presented a sale contingency and sale contingency. you notify the seller upfront when that period was going to expire. But here you may not move to sell contingency until the due diligence and repair have been completed. And the reason being again is it's a unilateral move. So the seller really has no say in it. so in this situation, we have to let that be completed. Before the end the seller contingencies we explain the seller had the right to either say yes or no I'll accept this contract or not. So it was an equal bargaining period. In this situation, it wouldn't be so as the buyer soon as you get a contract on your property with due diligence and repair done, it's completed, you need to immediately notify the seller because again, the seller can bump your contract with a better contract. So in order not to lose this contract, you need to race as fast as possible to the agent, the seller or the sellers broker and let them know you have got a contract it has been accepted due diligence has been completed repairs are completed and I'm ready to go. Once you move from selling clothes to close, you now have all the protections of a closed contingency. And you may not be bumped out of first position period. So now let's take a look at the state version. And there's really no difference between the selling clothes and the clothes contingency. They basically have them all together as one document, the state only has this one addendum and I believe it's called sale contingency but the language in there is actually kind of selling close language. And of course we're talking about form 504. So when we look at the agenda and it says that this contract is contingent upon the marketing and closing of the sale of the buyers property no later than blank calendar date prior to the closing date or on the closing day. This is called the buyer sell deadline and as you can see, it is a marketing and closing a sale which is basically a selling clothes. So it's more akin to our selling clothes in the ccra contract than it is to the actual sell contingency should the seller the buyers property not actually closed by the buyer sale deadline, then the buyer may terminate the contract by providing notice to the seller delivered what no more than blank days after the buyer sale deadline. So they actually allow the buyer and the seller to negotiate these timeframes. The seller may terminate the contract by giving notice to the buyer delivered no later than blank business days after the buyer sale deadline expires unless parties agree on one of the following is for cash buyers they verify or possess purchase price in US funds or the buyers financial financing is not contingent on the sale of buyers property. That document also establishes certain buyer duties. And it says the buyer must only make good faith efforts and actions to sell their property they must timely inform the seller and the broker has many necessary information. They must Tommy direct broker the law firm to disclose pertinent information and within blank days of the contract deliver seller and broker copy of each contract for sale on the buyers property. Lastly, within blank number of business days on the closing they must deliver the seller and broker notice that the property has actually closed and if the buyer defaults or breaches these duties, the seller can seek any remedies according to the contract which include terminating or seeking litigation. As far as as far as backup offers goes, the seller may continue to market the property and may accept any offer as a backup contract by using SCR form 391. Upon seller delivering notice to buyer of a subsequent offer from a cash buyer subsequent offer that does not contain SC r 504, or buy or sell condition the buyer within blank business days chooses or complies with ARV an A and B are delivered documentation to the seller that the buyers property is under contract for sale within that time deadline and no contingencies other than financing repairs, or remove the sale contingency only if closing the property can be required without purchase money coming from the sell this property. So what they're basically telling you here is, is that you basically have a right of refusal in this contract. And so how it works is it's the seller comes up and says Hey, I got a better offer, the seller provides notice saying, hey, I've got a better offer, it doesn't have any contingencies in it. And I'm giving you blank number of days to either show me you have a contract. And if you don't have a contract with no contingencies, then you have to remove your sell contingency showing that you can buy the property without having to use the money from the sell. So it basically creates that right of refusal, which we'll talk about in a few minutes. And I really don't like this. And it also basically allows the seller to pit other offers against you constantly, unlike in the ccra contract where if you've got a sale contingency, you're just good to go. And there's nothing that can Trump you at that point. But if you're selling clothes, and you obviously can be bought by a better offer this not selling clothes, furthermore says if buyer does comply with either A or B, then the buyer remains in first position, and the seller may accept backup offers. But if he doesn't comply, then the buyer or either party may terminate the contract. So it's quite different as you can see, and it doesn't mirror up with a ccra contract. In my opinion, I like the ccra version having two different forms because I do think a contract that is contingent on a sale contingency is a lot different than one that is contingent on selling clothes, because with a sale contingency. Most people are under that situation where they are selling their house and they're immediately buying years afterwards. And so the contracts there and it's under contract. And as long as that contract closes, you're good to go. It's quite different than selling clothes contingency where you're basically now hoping the other person sells their property. And it's not even under contract. And so I don't know why we would want to group those or lump those two together and allow a better offer to Trump something such as a sell contingency. Because if I'm buying your house, and we're basically doing Domino closings, I'm selling my house and then buying yours. I just don't like the fact that all of a sudden the last minute you can get a contract in and say, Hey, I got a contract this cash offer, there's no contingency. So I'm bumping you out. So because what is that going to do to me as a buyer, I'm going to wind up not be able to buy your house. And now I'm under contract to sell my house. And now I'm going to have nowhere to go. And that's going to create a lot of problems. So I don't really like that part of the state contract. So the last thing I wanna talk about is rider refusals. I don't like them, I think they're very bad. Because if somebody could buy your house without having to sell their house, they would just go ahead and do that. The fact that they want to make it contingent on the selling clothes or clothes or their house is telling me that they already have financial or financial reasons that they have to sell that house. So when you allow them to write a refusal, it allows them to go in and basically take out a provision that they need in order to buy the house. And then if it doesn't close, then and I think if they don't sell their house, then what they'll do is simply try to get out under a financing contingency, because most lenders are gonna look at and go, Hey, you can afford these two houses. So they're using this system here as a way to game it. And so my whole thought process is if they were already able to buy the house without having to do this contingency, they would have offered it that way in the first place, particularly in a market like today where we have multiple offers. So I don't really like the right of refusal. Secondly, most people when they write the right of refusal are terrible at writing them. And so they'll just say seller has 24 our first refusal. I don't even know what the hell that means. What does it mean, right, a refusal at the new buyers price and terms or right refusal at the first buyers terms, and that's where we get a lot of disputes, because it'll simply say, first, right of refusal, and then the buyer says, Okay, I just saw the writer reviews and they go, Yeah, but the new offers $5,000 more than yours, you're like, well, that's not my refusal, my refusal is my offer. And that's probably not the case, but the calls are written so poorly. Nobody really knows. So there's your information on sale and closing closed contingencies as well as first right of refusal. Thanks So many things. Now let's roll right into Gary's good news only and of course I am going to stay with Coronavirus, Coronavirus, Coronavirus, because that's what's going on big time in our world right now. So Disney World drops his outdoor mass mandate, which is what most of the restaurants and stores I know Walmart has dropped at targets dropped to the end Costco as well. And it's certainly nice to be able to walk into a store without having to wear a face diaper. So that's very good. The other thing I like to do in these Gary's good news always is point out the experts when they either flip flop or when this has been called completely lying or wrong, because I think it basically shows a lot about where we are where we're going. And the first flip flop I want to point out was Fauci, Dr. falchi said on asymptomatic, spread, that asymptomatic the level of virus is so low, it makes it extremely unlikely, very, very low likelihood that they're going to transmit COVID-19. Well, this was his position in early 2020, only to change it during the middle and now he's gone back to it. So I don't know that asymptomatic spread was not, you know, likely to spread that it became likely to spread that it became unlikely to spread again, I think it's always been unlikely to spread. I think he just continues to change as he wants. Fauci also admitted that his wearing masks indoors, despite being vaccinated was based on imagery and not science. He said, I didn't want to look like I was giving mixed signals. But being a fully vaccinated person, the chances of me getting infected in indoor settings extremely low, which begs the question is why you continue to wear the mask other than it's for fear. Also, Biden's advisor Michael osterholm, predicted the darkest days of the pandemic would be in the next 14 weeks. Well, what's happened in those 14 weeks cases have actually decreased 76%. So he was wrong. And then there's guy named Eric fiegel Dang, he's a so called expert on CNN. He has spent months fearmonger mongering about this new variant, the B 117. And the day he tweeted this seven day case average in Florida was 6520. Since that time, the seven day average is now 3230. So it's falling in the last 26 days dramatically. This was a tweet Come on Florida. I don't want to be an epidemiologist dude, who has to remind governor Sanchez delay that daily that he has a civic responsibility to stop the outbreak of B 17 in his state and stop the spread for the rest of us. b 17 is more contagious than COVID-19 in big trouble. So again, he's wrong. The previous CDC director said loose fitting cloth mask will protect us from airborne contagions better than the vaccine. But yet the current CDC director has said for months that vaccines you still had to wear a mask. And now she's saying that you don't have to wear them. So it's just it's just science, I mean, cross the experts. Right. And then well Lansky, the new CDC director also said somewhat confusingly that she was aware of 223 people who have died with COVID after being vaccinated. But then she says not all of those 223 cases who had COVID actually died of COVID. They may have had mild disease, but died for example of a heart attack. Well, why are they counting these for the vaccinated people but aren't doing the same type of counting for unvaccinated people because we know beyond a shadow dead the people who've died from car accidents, heart attack, suicide and drug overdoses have all been counted in their numbers which are grossly inflated. The CDC says last week that we reached 60% of all age 18 and over a resident population has been vaccinate with at least one dose as of 6am. On May 17 345 million doses have been distributed 275 had been administered. Additionally, 158 million people have received at least one dose at 123 point 8 million have been fully vaccinated. That now means that 47.5% of the US population has received at least one dose and 37% have been fully vaccinated. And lastly, on our seven day rolling average, new day for 35,004 42, which is a decrease of 23.6% compared to last year. Last week, seven day average, new hospitalizations are also down by 12.4%. And deaths are down 592, which is a decrease of 10.3%. So every week, the numbers has continued to get better and better and better. And that's Gary's good news. Well, hope everybody enjoyed this week's show. If you'd like this, please like us, share us and subscribe to us and please do that big favor reaching up there and click that button with thumbs up or give me five stars. It would make me feel a lot better about myself. And you know, that's always important. So anyway, hope everybody has a wonderful weekend and look forward to seeing you on our next show. Thank you for your support.