Cover story: Greater contract clarity helps everybody

A relatively small change in the language of the regional sales contract in the Washington area may have a big impact on the home-buying process, mostly because the new language reinforces the importance of a thorough home inspection for prospective buyers.

The Northern Virginia Association of Realtors (NVAR) and the Greater Capital Area Association of Realtors (GCAAR) collaborated on a new sales contract that their members in the District, Montgomery County and Northern Virginia began using Jan. 1. Counties in other parts of Maryland, including Prince George’s, Howard and Anne Arundel counties, will continue to use the sales contract approved by the Maryland Association of Realtors.

While several changes have been made to the regional sales contract, the widest-reaching change is in the property-condition clause.

“The previous contract stipulated that the home seller warranted that the ‘electrical, plumbing, heating and air conditioning systems and appliances would convey in normal working order on the day of settlement,’ ” said Adrian Hunnings, principal broker with Palladian One Realty in the District. “The problem is, no one could ever get a legal definition of the criteria for something being in ‘normal working order.’

“What’s normal in an 80-year-old home may be completely different from a home with a newly renovated kitchen,” he said.

Mr. Hunnings said the confusion over the language resulted in numerous disagreements at the settlement table.

“When last-minute issues came up about property condition, you didn’t necessarily see a lot of lawsuits because people were ready to sign and move,” Mr. Hunnings said. “Buyers and sellers were forced to compromise in order to get moving, but this often left everyone dissatisfied.”

Sometimes confrontations occurred because the sellers had no idea they were expected to certify that the oven or refrigerator worked to the buyers’ satisfaction. On other occasions, buyers were shocked to discover a leaking roof or wet basement or other structural problems were not covered by the “normal working order” clause.

“There was often a question after a home inspection generated a list of things that needed to be fixed whether each item fell under a ‘required repair’ list or whether it was a negotiable item,” said Greg Ford, an associate broker with Keller Williams Capital Properties in the District. “Now everything is equally negotiable.”

Home sellers are now required only to deliver the property “free and clear of trash and debris, broom clean and in substantially the same physical condition as determined” on a particular date, usually either the date of contract or the date of the home inspection.

On the surface, this seems to relieve sellers of responsibility for their home and therefore sway the contract in their favor. Local Realtors, however, say that in practice, the contract benefits both sides because it increases the clarity of negotiations about the property condition for both sellers and buyers.

Alan Simon, vice president of contract forms and licensing operations for Long & Foster Real Estate in Chantilly and chairman of the NVAR Standard Forms Committee, said sellers need to understand that the new contract does not automatically relieve them of any responsibility for home repairs.

“Sellers need to deliver their home in the same condition as it was on a specified date, so if something breaks in between that date and settlement, they will need to make the repair,” Mr. Simon said. “They will also need to pay for and/or repair anything agreed on in the contract.”

If homeowners want to sell their property “as is,” they will need to complete an addendum to the contract that states they are selling the residence without making any repairs.

“Buyers may benefit from the new contract because they can negotiate on any and all items,” Mr. Ford said. “In addition, buyers have to acknowledge that they don’t want an inspection, which gives their buyer’s agent a chance to discuss the importance of having a home inspection.”

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