The forms committee of the statewide Multiple Listing Service has done an outstanding job in creating purchase and sale agreements which are used for the vast majority of residential real estate transactions in the state of Alaska. The contract is virtually a fill in the blanks document and covers almost all contingencies, including those relating to financing, title, home inspections and appraisals. So the problems arising from the contract are not with the contract itself but with its users.
Negotiations over the purchase price and terms is only the beginning of a lengthy process. Once agreed between buyer and seller, there are specific dates where identified items must be completed on both the buyer and seller’s part. It is over the lack of compliance of these dates where many contracts are not being followed and, thus, jeopardizing the sale of the property.
The MLS PSA (purchase and sale agreement) requires a buyer to produce a 90% letter within a certain period of time in order to demonstrate their ability to pre-qualify for the mortgage on the home they wish to purchase. This is a no brainer as most PSA’s are never accepted by a seller without proof of the buyer’s preliminary ability to qualify. However, after that many listing and selling licensees tend to get sloppy with compliance without realizing their sale is in jeopardy. A preliminary title report must be ordered by a specific date. This report identifies any liens or encumbrances on the property. It also identifies for the buyer any unexpected IRS liens or judgments. If this is not completed as agreed, the contract is void. Home inspections must be completed by a specific date and agreement on repairs by seller. Again, the MLS PSA clearly states the right to terminate if not complied with.
Buyers may elect to switch financing options. If this occurs, it must be identified in writing. Seller closing costs may be affected by the type of financing procured by the buyer. Failure to identify can also result in a broken contract.
The closing date must be adhered to or the contract may be voided. Even a day or two delay makes the contract invalid without a written extension. Most buyers and sellers operate with the best of intentions, as do the licensees who represent them. However, as a long time real estate broker, I worry that we have become too sloppy in the execution of our contracts. Over the past five years, much has changed on how we list and sell properties. Online marketing and DocuSign have made transactions easier to create but that ‘easy way to do business’ has also created a lack of adherence and fulfillment of the contract.
A broker’s number one problem and, thus, liability, has to do with earnest money disputes over a broken contract. Staying in contract is the best way to avoid the dispute and finalize the sale. However, in the past any earnest money was kept in the selling licensees trust account and was rarely ever disbursed to a seller over a broken contract. Now, however, some brokers have elected to turn earnest money over to a third party title company, relieving the burden of accounting and disbursement in case of dispute, similar to how commercial transactions are handled. Tracking that earnest money, however, verifying that it has been deposited, receiving a copy of the check, does create greater opportunity for error on the part of the listing licensee. So, does the earnest money deposit due upon acceptance. That is when any offer does not receive a good faith deposit when presented. A good listing licensee must therefore chase it down to make sure it has been deposited. Without that deposit, there is no contract.