The things we are seeing in today’s real estate market are giving attorneys all across the state heartache; buyers waiving appraisal and financing contingencies, a constant barrage of escalation provisions, and even parties forgoing their right to inspect the property! Due to a severe shortage of inventory, this is a seller’s market in which buyers have very little leverage. So the last thing a buyer would want to do is unwittingly give their seller yet another advantage in the process. But that’s precisely what one obscure provision in your contract might do if you aren’t careful.
Many of us are familiar with Section 8(b) of the FR/Bar contract, which is commonly referred to as the “financing contingency”. This provision gives the buyer the right to terminate the contract in case they cannot get their loan, right? Well, kind of….
Section 8(b)(v) requires the buyer to either provide notice of (a) obtaining Loan Approval (as defined in the contract) or (b) waiving their financing contingency. However, upon closer review, the buyer’s failure to provide notice of either (a) or (b) actually allows the seller to terminate the contract and relist the property with no penalty. All the seller has to do is give notice that they want out, and the contract automatically terminates. The original intent of this provision was to protect a seller in the event they did not feel the buyer would be able to obtain financing and actually close. And in a normal market, a seller would almost never exercise this option, as they would want to keep the buyer locked into the contract no matter what. But in today’s market, with every listing turning into a bidding frenzy, savvy agents and sellers are using this sneaky little clause as a way to get out of a contract when there is a better offer on the table.
So remember to always provide written notice whenever required in the contract, even you don’t believe it is necessary. Because failing to give that notice won’t matter…until it does.
If you have any questions or concerns about a contract or any other matter related to your real estate transaction, please reach out to your trusted real estate attorney for legal advice.
Bishoy M. Habib, Esq., M.B.A. [email protected]
Berlin Patten Ebling, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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