Winston Salem | True Or False Regarding Contract to Purchase

 

 

Question

Under the Offer to Purchase and Contract (Form 2-T), if a party fails to perform a contractual obligation prior to closing, that obligation remains binding on them after closing. True or False?

Answer

False, unless the parties agree in writing that the obligation remains binding after closing or the obligation is, by its nature, one that must be performed after closing. See paragraphs 4(h) and 18 of Form 2-T. Virtually all obligations imposed on the parties by Form 2-T may be performed prior to closing. Those obligations do NOT survive closing unless the parties agree otherwise. 

Winston Salem | What are the buyer’s options when the seller removes a broken built-in appliance?

 

 

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QUESTION: Only a few days before closing, my clients learned that the seller had removed a beautiful built-in, cabinet front refrigerator and replaced it with what looks to be a used, freestanding stainless-steel model of significantly less value. When I asked the listing agent about the replacement, I was informed that the refrigerator had died and that the seller replaced it with one that could fill the opening. The refrigerator was not listed anywhere in the purchase agreement and I’m unsure if that was a mistake. My clients felt the built-in refrigerator brought the whole kitchen together and have learned that a replacement will cost as much as $15,000. With closing only a few days away, what can we do?

ANSWER: Form 2-T, paragraph 2(b), specifies that all “built-in appliances” are included in the sale as part of the Purchase Price. A refrigerator that is “panel ready” or “counter depth” may look like a built-in refrigerator to an untrained eye. Therefore, we would always recommend that agents specifically identify, within the purchase agreement, any appliances that the buyer wishes to be included in the sale.

If the seller had opted to leave the “dead” built-in refrigerator in place and simply notified all parties that the refrigerator was no longer working, the buyers would have two options under their contract. One, the buyers could terminate the agreement under paragraph 11 of Form 2-T by giving notice of termination. Termination under this paragraph would entitle buyers to a return of any due diligence fee and earnest money deposit, as the home would not be in as good or better condition as on the date of their offer. Two, if the damage were covered under any insurance policy, the buyers would be entitled to purchase the home and receive any benefits or payment under of any insurance claim filed by the seller. Note, however, that paragraph 11 does not allow the buyers to seek reimbursement of any other expenses incurred during their due diligence. The reasoning for this limitation is that the seller is not considered to be in breach of the agreement if conditions of the property have merely changed and should not be penalized by having to pay buyer expenses.

Once the seller removed the refrigerator, however, there is a good argument that the seller breached paragraph 2(b) of the contract to purchase. By removing the appliance, the seller has taken from the buyers the option to have the refrigerator repaired. Furthermore, the replacement is materially different and less desirable than the original. Under paragraph 23 of Form 2-T, the buyers would have the right to terminate the contract and seek reimbursement of their expenses incurred to investigate and prepare for the purchase of the property. If the parties are unable to reach a resolution prior to closing, you should advise your clients, in writing, to seek legal advice to fully explore their options to help make the decision on how to proceed with the purchase of this home or terminate the agreement and recover their damages.

© Copyright 2023 - 2024. North Carolina Association of REALTORS®, Inc.

This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

Winston Salem | If a buyer indicates he won’t close, when can a seller terminate the contract?

 

This is just a hypothetical scenario

QUESTION: I represent a seller and the listed property is under contract. The due diligence period has expired, and the settlement date is 30 days away. Yesterday, the buyer’s agent sent me an email stating that his client will not proceed with the purchase. However, the buyer is now refusing to sign a mutual termination agreement unless the seller releases the entire earnest money deposit back to the buyer. The buyer is not claiming any legal right to terminate the contract unilaterally. Apparently, he is hoping that the seller will give up his contractual right to the deposit and terminate now so that he doesn’t have to wait 30-45 days to put his property back on the market. Does my seller have to wait until the Settlement Date, or maybe even 14 days after the Settlement Date, to terminate the contract and re-market the property? Or can he terminate now based on what the buyer agent has told me?

ANSWER: There is a concept in contract law called anticipatory repudiation of a contract that could potentially be applicable to your situation, but it depends a lot on the facts. The idea is that if, before the time arrives for performance (i.e., the settlement date), the buyer repudiates his obligation to perform under the contract, the seller can treat that repudiation as a breach of contract and legally terminate the contract early based on that breach. Under North Carolina law, for a party’s repudiation to result in a breach of contract, that party must express, through words or conduct, a positive, distinct, unequivocal and absolute refusal or inability to perform. This is a high standard. It means that your seller would need very strong evidence that the buyer is absolutely refusing to perform his contractual obligations before he could safely terminate the contract prior to the Settlement Date. If your client wants to go that route, you should strongly encourage him to first seek legal guidance.

If your evidence of repudiation is not strong enough, the next issue is whether the seller has to wait 14 days after the Settlement Date before terminating the contract, as provided in the Delay in Settlement/Closing paragraph of the Contract. Time is not of the essence regarding the Settlement Date. Under North Carolina law, that means the Settlement Date is considered a target date, and a party would have a reasonable time following that target date, under the circumstances, within which to complete the transaction. Your seller can argue that the buyer doesn’t deserve any additional time to complete settlement and closing because he does not meet paragraph 12’s definition of a Delaying Party. Most significantly, the buyer does not intend to complete the transaction. If the buyer is not entitled to a delay in settlement, the buyer’s failure to close on the Settlement Date would arguably be considered a breach of contract. If your seller wishes to make this argument, and terminate the contract prior to the expiration of the 14-day period, you should strongly encourage him to first consult with an attorney. Otherwise, the safest course is to wait the 14 days before terminating.

© Copyright 2020 - 2024. North Carolina Association of REALTORS®, Inc.

This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

Winston Salem - Is seller’s intended refusal to sign a deed a material fact?

                                                

QUESTION:  I listed a property for sale that is owned by four siblings. All four of the siblings and their spouses signed the listing agreement. An offer was received several weeks ago and, after some negotiation, all four siblings and their spouses signed a contract agreeing to sell the property. We are still in the due diligence period and the buyer is still investigating the property. One of the siblings (I’ll call him Joe) just called to tell me that he is upset with the other sellers and that he does not intend to sign a deed to the property. Is Joe’s stated intention a material fact that I need to disclose to the buyer?

ANSWER:  Clearly, Joe has time to change his mind prior to Settlement and sign a deed. For this reason, there is an argument that Joe’s stated intention is somehow different from other types of existing facts. In our view, this argument is not persuasive. The information you have received from Joe is a fact, and it is sufficiently material that you need to promptly disclose it to not only to the buyer but to Joe’s siblings

The North Carolina Real Estate Commission has identified three categories of facts that must be disclosed to all parties if a licensed agent has knowledge of those facts: (1) facts about the property itself, (2) facts that relate directly to the property, and (3) facts that relate directly to the ability of a principal to complete the transaction.

In its Real Estate Manual, the North Carolina Real Estate Commission gives several examples of “facts that relate directly to the ability of a principal to complete the transaction”. One such example is the seller’s inability to convey clear title.

Virtually all real estate contracts require the seller to execute and deliver to the buyer a General Warranty Deed  conveying fee simple marketable and insurable title (see paragraph 8(g) of Standard Form 2-T). Your clients will not be able to meet this obligation unless all four siblings (and their spouses) sign the deed. Since you now have information that calls into serious question the ability of your principals to complete the transaction, you should promptly disclose that information to the buyer and to your own clients.

Release Date: 3/29/2016

© Copyright 2016 - 2024. North Carolina Association of REALTORS®, Inc.

This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

Winston Salem - What are an agent’s duties regarding disclosure of an off-site condition?

 

QUESTION: A broker in our office who represents a buyer recently put a home under contract. During the home inspection this week, the buyer was standing outside the house and heard a train go by. It was not visible but the buyer was upset that the existence of a railroad track in close proximity to the back side of the property was not disclosed on the Residential Property and Owners’ Association Disclosure Statement. The seller checked the “No Representation” box on all the questions on the Disclosure Statement.

The buyer intends to terminate the contract. It is within the Due Diligence period, so the buyer has the right to do so and receive a refund of his Earnest Money Deposit. However, the buyer also wants to recover his Due Diligence Fee and the home inspector’s fee because he feels that the presence of the railroad track should have been disclosed and that the sellers have somehow breached the contract. Does the existence of an active train track (that is not visible from the house) have to be disclosed by the seller? Did the seller breach the contract? If not, does the buyer have a claim for damages against the listing agent?

ANSWER: Under North Carolina law, sellers have very limited disclosure obligations to buyers. While sellers may not misrepresent facts, or fraudulently conceal a defect in their property, the general rule is caveat emptor, let the buyer beware. Here, there is no evidence that the seller has misrepresented anything nor actively concealed the existence of the track. As a result, we do not believe that the seller has breached the contract.

Unlike sellers, REALTORS® are required both by statute and by the REALTOR® Code of Ethics to disclose all material facts to their own clients and to the other parties involved in a real estate transaction. Licensees are subject to disciplinary action and potential civil liability for failing to disclose a material fact.

In some cases, it is not easy to determine whether a fact is sufficiently “material” to require disclosure. The North Carolina Real Estate Commission has identified three categories of facts that must be disclosed if the agent has knowledge of those facts OR if the agent should reasonably be aware of those facts: (1) facts about the property itself, (2) facts that relate directly to the property, and (3) facts that relate directly to the ability of a principal to complete the transaction.

The second category, facts that relate directly to the property, are typically external factors that affect the use, desirability or value of a property. Examples given in the Real Estate Commission’s Real Estate Manual are a pending zoning change, the existence of restrictive covenants, plans to widen an adjacent street, and plans to build a shopping center on adjacent property.

In determining whether a particular “external factor” sufficiently affects the use, desirability or value of a property so as to require disclosure, a reasonableness standard should be applied. Ask yourself whether the external factor would affect a reasonable prospective buyer’s decision to buy the property. In the situation you have described, the close proximity of the track to the listed property militates in favor of disclosure because the noise produced by passing trains could certainly be substantial enough to affect the normal use and enjoyment of the property.

Agents on both sides of the transaction have a duty to discover facts which, through reasonable diligence, should be known to them. When those facts are material, they must be disclosed. Here, the existence of an active railroad track adjacent to the subject property likely should have been discovered by both agents and disclosed to the prospective buyer BEFORE the buyer made an offer for the property. Thus, in our view, both agents (and possibly their firms) face potential disciplinary action and/or civil liability for failing to disclose the track to the prospect before the property went under contract.

© Copyright 2013 - 2024. North Carolina Association of REALTORS®, Inc.

This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.