In the process of writing offers, there are several exhibits and addendums that seem to be more widely used than others. The purpose of exhibits and addendums is to formalize the process of accommodating various common reoccurring situations during the negotiations process. When combined with the standard purchase and sales agreement, the exhibits and addendums give additional definition and requirements to the transaction.
At a quick glance, the following are the most commonly used exhibits and addendums in today’s market.
5. Back-Up Agreement (GAR F-91)
This form is used to negotiate a secondary contract when there is already a Binding Agreement on a property. The Back-Up Agreement allows a newly interested buyer to establish a contractual obligation for the seller to let them know if the primary deal is terminated.
This form is a very powerful document. It allows the back-up buyer to wait for the property to possibly become available for purchase while he/she may continue to shop for other properties. In the event the back-up buyer becomes the primary purchaser on another property, they can simply give notice to terminate their back-up status on the prior property.
4. Short Sale Contingency Exhibit (GAR F-94)
The Short Sale Contingency Exhibit discloses to the parties that the transaction is a short sale and that an approval from a third party – the seller’s lender(s) – is required to complete this transaction. If the third party approval is granted, the transaction may proceed to close. Without the third party approval, the deal may be terminated and all parties restored to their original positions.
3. Sale or Lease of Buyer’s property Contingency (GAR F-90)
This exhibit allows the buyer to commit to the purchase of a property based on the successful sale of the buyer’s current property. As long as the buyer sells their home, they will buy the seller’s property. Otherwise, the buyer is not obligated to complete the purchase.
This form also allows the seller to continue to offer the property for sale under a “modified” active status in the MLS systems (CO or CK) and even allows them to ask the buyer to step aside in the event another buyer comes along without a contingency or that can close sooner. The buyer may put up additional cash and waive ALL contingencies if they really want the property and avoid the kick out provision. This can be very risky pertaining to the financing components surrounding the transaction.
2a. Financing Contingency: FHA Loan Exhibit (GAR-F63), Conventional Loan Exhibit (GAR-F64), and VA Loan Exhibit (GAR-F65)
These forms disclose to the seller the pertinent details surrounding the buyer’s financing and offers protection to the buyer while they seek to obtain the financing to complete the purchase. The forms offer appraisal contingencies that safeguard against the property value failing to meet the contractually agreed price. Buyers, agents and lenders should be very alert as time is essential in these exhibits and failure to meet the timelines will have severe detrimental impact on the deal and the protection offered by the exhibits.
2b. Financing Contingency: All Cash Sale Exhibit (GAR F-79)
Cash is King! This exhibit discloses to the seller that the buyer doesn’t require any lender involved financing and they will be paying cash at the closing. The buyers also commit to producing documentation necessary to substantiate this claim (aka SHOW ME THE MONEY!). There’s also appraisal protection in this exhibit to allow the buyer to verify the value exists in the property prior to completing the transaction.
1. Sellers Property Disclosure Exhibit (GAR F-50)
The most commonly used exhibit in all of GAR form land! This form allows the seller to convey information to the buyer about the condition of the property and any attachments. The disclosure statement is to be used in most transactions with very limited exceptions. When in doubt, disclose! “As Is” sales are no exception; a disclosure statement is always needed. The seller greatly diminishes their potential for liability when there is (honest) full disclosure.
Many sellers are led to believe there is no need to disclose defects in “As Is” transactions. The truth is the seller is more likely to face potential claims of fraud in the absence of the disclosure statement. When an unsuspecting buyer uncovers hidden defects month after the closing, the question is always raised as to the seller having prior knowledge of the matter. If the buyer can substantiate this claim, the seller may face severe legal consequences. Disclosure statements are not a substitute for home inspections and home inspectors can’t discover things that a seller may have intentionally failed to mention or disguised.
Feel free to comment on this blog about how uses of these forms have offered additional protection to your customers and clients. Exhibits and Addendums when used properly can truly save the day for buyers and sellers.
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