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December 08, 2008

New Home Sale Contract

The Erie County Bar Association, in conjunction with the Buffalo-Niagara Association of Realtors, is putting the final touches on a new residential real estate contract to be used for the sale of single family homes throughout the Buffalo-Niagara region. Any person who intends to sell his or her home this year should be interested in the changes reflected in the new version of the standard contract.

The new version of the contract adds language which strengthens the Seller's rights where a Purchaser fails to make a timely payment of the good faith deposit. In the event the deposit is not received within three (3) business days of when it is due then "Seller may cancel this contract at any time prior to Escrow Agent's receipt of whichever of the Deposits was past due". Before the Seller had no remedy when the good faith deposit was late, other than to make time of the essence to close at least one week after the closing date set forth in the contract. Sellers who knew that the Purchaser had no ability to close because of financial problems nevertheless had to wait until the whole financing and closing process played out before declaring the deal dead for some other reason than the failure to make the good faith deposit, i.e., failure to obtain a mortgage commitment or failure to pay the purchase price at closing. The new contract language now establishes a foundation for the Seller to unilaterally cancel the deal on the fourth business day after the signing of the contract, provided that the deposit has not been received.

Home sellers will like the flexibility that they will have under the new contract to get out of a bad deal due to the lack of a good faith deposit. On the other hand, will sellers use this language to jump to a higher offer from a third party, thereby leaving the original purchaser out in the cold merely because he/she was dilatory in getting to the bank to withdraw the deposit funds, or because he/she was conservative and waited for funds "cleared" of the collection process before writing out the deposit check? We will see how this plays out.

There are many other important changes which we can review in upcoming articles, one such change being that you no longer sign at the end of the contract.