Change in contracts can hurt the seller

My dictionary defines a contract as “an agreement between two or more parties, especially one that is written and enforceable by law.” It then gives an alternate meaning: “a paid assignment to murder someone.”

Unfortunately, some sellers today are having to take a hit on the way to getting a sale.

Since early this year, the Georgia Association of Realtors has issued a newly revised real estate contract, called a “purchase and sale agreement.” That form has led some sellers to cry foul. The change involves the replacement of the old “inspection clause” with a new “due diligence period.”

Under the old form, buyers typically could have a certain number of days to have the property inspected. If problems were found, the buyer could request fixes. The seller could accept or reject the buyer’s request. If repairs were made, the buyer had the right to reinspect, and so on, and so on, forever.

Clearly, something needed to be changed. Part of the problem stemmed from the fact that we don’t have licensed home inspectors in Georgia. What exactly is a defect and what is not? And whose opinion should we accept as authoritative?

Another problem arose when allowing the seller to make repairs on what would soon become the buyer’s new home. Buyers often felt that they should be the ones deciding who would perform the work. And if the work performed was less than satisfactory, what remedy did the buyer have?

So this year, the GAR decided on a different approach. Removing the inspection procedure in its entirety, the new form allows the buyer and seller to agree on a “due diligence period,” consisting of a negotiated number of days. During this period, often seven to 10 days, the buyer has the right to perform any inspections or tests that he or she may desire.

The buyer can hire a “professional inspector,” walk through the neighborhood, visit the schools, drill for oil or have the soil assayed for traces of gold or silver. And during this period, the buyer can, at any time and for any reason, simply notify the seller that he or she is withdrawing from the contract and the deal is off. In that case, the buyer’s earnest money is returned in whole.

Likewise, if the buyer chooses, he or she can attempt to renegotiate the agreement to compensate for any circumstances or conditions that may have been discovered during the due diligence period. If the seller refuses, the buyer may withdraw, or he or she may choose to proceed anyway and still buy the house, warts and all.

This all seems very fair in theory.

From the buyer’s side, no one should be required to buy a house that has conditions the buyer didn’t know about when the original offer was signed. And, after a reasonable time to fully investigate a property, the seller deserves to know the buyer is fully committed to follow through to the closing.

But some buyers are employing a strategy that seems calculated to rob the seller of the agreed-upon purchase price. Here’s how it works: The buyer looks for homes on the market an extended period of time, assuming that the seller is weary of having his or her home on the market.

That’s not too hard to find in this season.

The buyer makes a low offer, representing in the agreement that he or she is accepting the property subject to the “due diligence” period of seven to 10 days. The seller becomes emotionally hooked on the offer, believing it to be a genuine offer to purchase the house (which it technically is). Then toward the end of the due diligence period, the buyer produces a laundry list of shortcomings discovered about the house, real or imagined. Instead of asking that any “defect” be corrected, he or she simply offers to renegotiate the price at a steep discount. In exchange for the lowered price, the buyer will now agree to purchase the house “as is.”

For a worn-out and beaten-up seller, the only choice available seems to be to accept the reduced-price offer, praying that the closing will happen and that he or she will be released from real estate purgatory.

In my opinion, there is nothing wrong with the way the forms are written. It is only reasonable for the buyer to expect a period of time for inspection. What’s unreasonable is allowing the buyer to bully the seller into accepting less for the house than the seller honestly feels it is worth.

Sellers must understand that the offer to purchase will almost certainly contain a contingency for inspection — whether it’s called an inspection period or a due diligence period. During that time, the seller needs to know that he or she is still not under a firm agreement, and that the buyer may very well come back and ask for more.

The only alternative is for the seller to insist that all offers include a stipulation that the contract contain no contingencies whatsoever and that the buyer agrees to accept the property in “as-is” condition. Unfortunately, in today’s buyer’s market, such an attitude would result in few offers. My advice is “caveat venditor.” Let the seller beware.

John Adams is a broker and investor. For more real estate information or to make a comment, visit Money 99. Find previous articles by John Adams and more home buying advice on the ajchomefinder mortgage center.