The Atlanta Report

The Georgia Association of Realtors, GAR, has made some really significant changes to their contract.  I plan on writing a series of posts on the more significant items. This is the contract that most real estate deal are done with.  One of the major responsibilities that an agent has is to make sure their clients complete the contract correctly in order to have a legally binding contract.

The biggest change to the contract, and I really like it, is the Financing Contingency Period.  It used to be that contract was contingent on the financing all the way up until the day of closing.  Many a deal has fallen apart because the loan was denied at the last minute.  Sometimes buyers would get cold feet and get the lender to give them a loan denial letter in order to get out of the contract with their earnest money intact.  Not any more.

Just like there is an inspection period after which you are buying it as-is, there is now a financing contingency period, after which you lose your earnest money if your loan gets turned down.  You now will negotiate a period of time in which your financing contingency is good for.  This is the only time where you can show that you have been denied for the loan and be able to get your earnest money back.  So if your loan isn’t approved or still has some conditions to be met, you better be confident that it will be approved before closing or you risk losing your earnest money. You could always do this but it required the effort of writing it into a special stipulation. 

I see this as a very good thing for everyone involved.  It’s going to take more upfront planning and some quicker turn around times for buyers to meet the negotiated timelines.  I see buyers making sure they are really preapproved before they negotiate a contract.  If the appraisal is done after this time period, you better make sure that the contract is contingent on the home being appraised for at least the purchase price.  Anything that the lender requires, the buyer is responsible for obtaining during this period, including the termite letter and flood certification.  If that might be a problem, you need to address it upfront in a special stipulation.  After a contract is negotiated, it takes the agreement from both parties to make changes to it. 

It has usually been accepted that one needed the entire time to work out the loan details.  Not too many sellers placed time limit demands for final approval of the buyers loan.  If you did, it was a special stipulation that had to be added.   Now that it is part of the regular contract that needs to be negotiated, I think a 10-14 day window is what will seem to be acceptable.  Will lenders be able to get it done so quickly?

I think this will really hurt the mortgage brokers who don’t have in-house underwriters.  I know as an agent I’m going to make darn certain my buyers know the risks involved if their loan isn’t denied in time.  Their lender better let them know exactly what documents are needed and they better be able to get them quickly. Brokers who have to send out the package to an underwriter in another city will really be pressed for time.

One technical thing is that the denial must be for the loan that is described in the contract.  If they apply for a different loan, they better make certain that the contract is amended to reflect this.  Just another little detail that a good agent worth their commission will need to keep track of.  Know the details or risk losing your earnest money.