FR/Bar Contract Changes effective November 1, 2021
By: Joseph E. Seagle, Esq. President of PCS Title
October 10, 2021
Greetings! Big things are happening that affect our REALTOR friends, customers, vendors, and referral sources. If you aren’t following us on Facebook already, please do so to keep up with our latest and greatest posts and information.
1091 Words…4 ½ minutes
1 Big Thing: FR/Bar Contract form changes are the first since 2017.
The most-used Florida contract forms are changing…for the better…but default choices can get you in trouble.
- Changes are effective, starting November 1, 2021, and all REALTORs are required to use the latest form contracts as of that date. Non-REALTORs and others in areas that do not use the FR/Bar contract forms are not affected and will continue to use their own preferred forms.
- The “personal property” section now includes many things, like speaker and television mounting hardware and smart thermostats, that weren’t automatically included in the past.
- Appraisals must be completed within the “Loan Approval Period” and are no longer a “property-related” loan condition.
- Buyers must (no longer optional) notify the seller whether they did or did not obtain loan approval before the loan approval deadline. If they say nothing, then it proceeds as a cash transaction. However, sellers must make written requests about the status of the buyer’s loan application, appraisal, and loan approval.
- Phone calls and texts are not binding. “Written” includes e-mails and faxes, but not text messages or other instant messaging platforms that are too ephemeral for evidence. E-signed contracts and addenda are just fine though.
- The Closing Date still extends automatically for CFPB requirements, but only for 7 (not 10) days, and it’s clear they can only extend for borrower disclosures and nothing else. No more loan officers gaming the contract for 10 more days to prepare for closing.
- Form riders are more important than ever, referred to by form letter throughout the contract, required for specific situations from pre- and post-occupancy to seller financing. New riders for short-term/vacation rentals and PACE loans are now available and listed to be used when applicable.
- If nothing is checked, the contract is “non-assignable.”
- Surveys, once due during the title review period, are now due at least five days prior to closing.
- Deadlines are now at 11:59 p.m. where the property is located, instead of 5:00 p.m.
- No surprise here: Force Majeure (reasons to stop performing under the contract) now includes civil unrest, government shutdowns, epidemics, and pandemics.
State of Play: New technology, loan approval frustration, and the uncertainty that 2020 wrought, pushed the Florida REALTORS and Florida Bar to make changes to the contract to avoid litigation and simple misunderstandings.
- Some REALTORs have used “intentional ignorance,” refusing to request written loan approval updates, or following up on deadlines to play “gotcha” with the other party.
- Parties and their REALTORs have increasingly used text messages and phone calls to negotiate repair credits and deadline extensions.
- Appraisals aren’t completed until days or even hours before the Closing Date, leaving the parties in limbo, facing last-minute price-reduction negotiations.
What we’re watching: The default loan approval period is 30 days. If the parties stick to default time periods, appraisers and surveyors — already stretched and unable to meet current deadlines — will miss even more, extending closing dates or canceling contracts altogether. “Additional Provisions” written on the fly are a thing of the past for the most part, no longer needed now that riders are referenced by their form designation letter throughout the contract forms. Finally, while more personal property is made part of the contract, there will still be arguments over patio pots, surveillance cameras, and wine cellars.
2. Wall Street is buying Main Street…and renting it out.
Institutional buyers like OfferPad, OpenDoor, Zillow, Main Street Renewal, Blackrock, and others with billions of dollars to spend are buying homes in fast-growing areas all over the country. Smaller regional investors are competing in the same space, but they don’t have the deep pockets that come with Wall Street money, and it’s unknown how long they can hold out against the well-capitalized billionaire funds.
- As reported by CNN, institutional buyers are targeting specific zip codes, price ranges, and property types, these funds are soaking up homes that are usually starter homes and affordable for Millennials, Zoomers, and retiring Boomers, reducing supply that is in high demand, and driving up prices even more.
- With artificial intelligence and a data trove that has never been seen before, the funds anticipate and meet every objection a seller or buyer may have:
- Don’t want to accept their offer right away? Fine, they’ll list it at a low commission; if it doesn’t sell in 30 days, they’ll still buy it at their original offer price.
- Can’t afford to make repairs to get a higher price for the property? No problem, they’ll front money and labor to fix up the property, then list it or buy it.
- Don’t want to move right away? OK, stay in the property up to 90 days after closing, rent-free.
- Can’t get a loan? They’ll rent the property to you until your credit improves, then their wholly-owned mortgage company will provide a loan to you for the purchase, with credits from your rent toward your down payment while their wholly owned title/closing companies close the transaction.
- TRSTE, LLC, a land trust company affiliated with PCS Title, holds title to hundreds of Florida properties. They sign an average of five contracts a month to sell trust-held properties to such Wall Street funds … and all of them — so far — are closing on time and at the offered price.
- Rumor is that 15% of all home sales in Q1 2021, were to such institutional buyers, and they’re not even buying everywhere — just in the hottest markets.
Between the Lines: While they may not be buying all the houses, they’re buying the most important ones, driving up prices and pushing seekers of the American Dream out of the market. Will this destabilize American society in the long run?
Why it Matters: With a seemingly bottomless pit of cash and data to throw at home purchasing, they’re controlling (and collecting) the listing and sales commissions, repair costs, title insurance and escrow costs, and loan fees. In hot markets, they are paying full price or more for the properties, making sellers very happy, but poor buyers who rely on obtaining a loan and inspections to purchase a property are shut out of the market. Also, where will REALTORs, local closing agents, and lenders be needed in a market where everything is vertically integrated and controlled by a handful of one-stop buyers-sellers-lenders-closing agents?
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