[Music] Hello everyone and Welcome to another episode of Selling Greenville your favorite real estate podcast here in the lovely Upstate of South Carolina I'm your host Stan McCune realtor as always right here in the Greenville area of South Carolina you can find all of my contact information in the show notes if you need to reach out to me for any reason any of your real estate needs can help you with or if you just want to talk about the show talk about the market in general you guys know I'm accessible pretty much whenever you need me to be I'm not a 9 to-5 Monday through Friday realtor and I enjoy what I do so I enjoy talking about it I don't have a problem if someone reaches out and it's just like hey I heard such and so about the market is this true feel free to I enjoy that and I would appreciate if you guys could support the show tell me that you actually like the show that you want me to keep producing content by subscribing ing by hitting the festar rating button and by leaving a short 5-second review that is all I ask of you guys I've not I'm not hitting you guys up begging you guys to send me new clients or to do this or that all that I ask is that you guys do that and that you remind me if or remember me I guess I should say remember me for any of your real estate needs okay today we are going to be talking about the South Carolina Association of Realtors contract form which is the predominant contract form purchase agreement that is used in Greenville it's pretty much the only one that is used when there is a house listed on the open market for a lot of different reasons one of them is not that South Carolina requires this form that's a very important thing to know I've heard multiple attorneys say you can write up a contract on a napkin if you want to now that contract might not protect all parties and there may be some ambiguities in there that allow one party to back out potentially get their earnest money back or forfeit the earnest money or whatever the case may be but the point is that South Carolina does not require you to use a certain type of contract but the South Carolina Association Realtors has a lot of Attorneys at their disposal people that understand realate they have produced a contract form that pretty much every realtor in the upstate uses and it is a neutral contract supposedly I mean it's supposed to be a neutral contract it's not designed by any one brokerage my brokerage at one point attempted to design a contract that was better than this form and other Brokers rebelled because they thought that they were supporting my brokerage well that wasn't the case that was also a neutral form but the point is that there are politics between Brokers and they don't want to seem like they are conceding something to another broker by potentially using their form there is some advantage to there basically being one primary contract that is used and that is that all of us as realtors that are trained and that have educated oursel on the form and that are in the market we all know this form very very well and so that is the advantage of just having one contract we can speak the same language we know exactly what to look for what the important terms are we know what the potential headaches are are going to be or what where the potential loopholes may be and so that is something that is a very important aspect of us having a a unified contract form and I can appreciate that and completely understand the value there but what happens as I just mentioned we we do educate ourselves on the form we we do have a level of familiarity with it I mean I look at it pretty much every single day so my some of my clients are even very familiar with it some of my clients that have done multiple multiple purchases over the years they know this form pretty well also at least those that actually stopped to read it but because of all of that when changes are made to it it can kind of create some upheaval now a few months ago I indicated that there was some discussion about changing this form specifically when it came to the inspection rights of the buyer and then the sell's responsibility to repair things after they're inspected well that was officially ratified and will go into effect those changes in the month of June in the middle of the month of June mid June and so I I promised you guys at the time that I recorded that podcast that if we got a date for when it was going to go into effect that then I would record a show prior to that to discuss a little bit more of what I thought was the Fallout once I actually got to see what changes they made and here we go I have gotten to see the changes I have already had a class on it where Austin Smallwood with the South Carolina Association Realtors led the class answered a bunch bunch of our questions and I feel like I am ready for these changes to be rolled out here I'm recording this in the month of May but I'm ready for these changes to be rolled out when the month of June comes around these changes are are very interesting because it's unlike any other changes at least that I've seen since I've been a realtor for 6 and a half years because all they did was delete language they did not add at least as of the time I'm recording this of course they're welcome to change it between now and then I don't think they will though they did not add any language they only removed language so little history class the contract form what what we call form 310 this purchase agreement contract that I'm talking about for several years now it has had three options the options are due diligence Asis and repair procedure the vast majority of normal transactions when I say normal I mean not involving investment properties not involving multif family not involving something that needs a ton of work you know a property that needs a ton of work is down to the studs whatever the case may be just a normal person in a normal neighborhood selling a normal house to a normal buyer right nothing just what you picture when you picture someone purchasing a house that they want to live in that type of normal transaction most of those normal transactions happened with one out of those three things they each have a check box next to them and repair procedure was the one that was checked I'm not going to re hash everything that I discussed in the last podcast where I discussed this contract but I will say this I I'll give you a quick summary repair procedure basically has nine categories of things that the seller must repair if the buyer's licensed inspector finds major defects with them and these nine categories only covered the major things in the house the AC systems the plumbing system the electrical systems making sure the roof doesn't have leaks etc etc only the major things did not cover Ticky Tac things and it specifically said that fogged windows are not included that flooring and cosmetic defects and Home Maintenance things are not things to be included it also did not include anything it never had anything in there about appliances and that would often times cause grief to people if appliances were deemed to not be functioning correctly well unless the realtor had said added additional language that the appliances were to to convey and be operative they don't have to they they don't have to be operative they it might just be a a stove or range that just doesn't work at all but the seller is not obligated to fix that because it wasn't considered a major part of the house one of those nine major systems so that was what most of the contracts were agreed to was the repair procedure basically the buyer does their inspections if they find problems with those nine categories then they send a repair addendto the seller and then the seller either agrees to some or all or none of them and then the parties have to come to an agreement on what repairs whether they're they're on the same page with what repairs are done and how Okay so that was it's kind of a a middleof the road way of going about it at the end of the day it's basically your the buyer is protected that nothing major for the most part is going to be wrong with the house and the seller is protected for the most part that the buyer is not going to ask for Ticky teac repairs that was what they were trying to do with repair procedure unfortunately neither of those things happened it it turns out that you cannot cover every single potential problem with a house in nine categories there's just no way and you also can't prevent a buyer from asking for Ticky Tac repairs interestingly the the repair addendum that is a document that we can all use in tandem with this contract form the repair ad denim is just a big block a big paragraph section of of a page it does it's there's nothing special about it you just write in it you can write whatever you want on there but in classes on how to fill out the repair addendthey told you to to draw lines on it and make it almost like a grid but then for whatever reason South Carolina Association of Realtors never did that they left it much more open-ended and to me that ended up being a problem because it ended up being so open-ended that people would just fill it out however they wanted to and respond to it however they wanted to and subjectivity became the death now of of repair procedure too many disputes over what's contractual what's not too many earnest money disputes over whether repairs that needed to be done were done or whether repairs that needed to be done were even asked and so ultimately I think just after tons and tons of complaints hotline calls etc etc the South Carolina Association of Realtors has decided that they are going that they are doing away with repair procedure altogether doing away with repair procedure also they decided to do away with Asis Asis simply means that you are not making the the purchase in any way contingent on the condition of the home now I've said before there is a separate contingency for a termite and moisture inspection where the home has to be deemed to be free of wood infesting pests of moisture issues etc etc that is a separate contingency separate from anything in the inspection parts of it and that remains separate so people will still have that as its own contingency to keep them safe from termite and moisture issues but no longer will there be repair procedure or as is as options as is again being that you're not making it contingent on any inspection things except for potentially the the termite and moisture test and so here we go we now only have one option and now it's not even an option it is just what the contract has in it is a due diligence period now traditionally due diligence has been deemed too buyer friendly and the reason is this it allows the buyer to essentially back out during the due diligence period for any reason for any reason whatsoever the buyer can back out and not be considered in default of the contract thereby being in theory able to get their earnest money back now it's important to realize that this form does actually not discuss earnest money at all from the standpoint of how it might go back to any parties the way it's handled in South Carolina if some if a buyer backs out the parties have to come to an agreement on how the earnest money is dispersed or a court has to has to decide for them if the Court decides that slows a lot of things down but a court if it got to that point a judge would decide that if someone backed out during their due diligence period most likely the buyer would get their earnest money back that is kind of the rule of thumb and and the way we think of this however what's interesting so when I went to the class with with with Austin fromr he started the class off by asking how many of you think that these changes because we we all knew what the changes were how many of you think that these changes are too buyer friendly a handful of people raised their hands how many PE how many of you think that these changes are too seller friendly a handful of people raised their hand most people myself included did not raise our hands because my personal opinion is this it is neither buyer friendly nor seller friendly it is dependent on the market in a seller's market it is seller friendly in a buyer's market it is buyer friendly and here's why I think that you say well it's due diligence the buyer can back out for any reason isn't that going to to mean that it's just going to be tremendously buyer friendly no in fact I've heard more anks that it's going to be more seller friendly than I have from people that that think the reverse here's the reason it includes an additional termination fee this is in addition to the earnest money and so the termination fee is basically the buyer saying if I back out from this contract during my due diligence period I will forfeit over this termination fee and the termination fee part of it is honestly the part that I hate about this the most because South Carolina Austin with with South Carolina Association of Realtors was very clear Realtors cannot handle the termination fee that it should never change it should never be touched by a realtor however when you deliver notice of of termination to the seller you have to include that fee with the notice and so somehow we're going to have situations where buyers are having to to travel to you know maybe to the closing attorney's office or somewhere neutral to deliver a termination fee and you know Austin went so far as to say that they should take a picture that shows that they have dropped off the termination fee with the appropriate party that that part of it I'm not super happy about and and I'll tell you this right now a lot of Realtors are not going to do that I'm going to have to figure out where I stand on that because I understand there's a tremendous amount of Li ability for the realtor to be holding on to that check which is made out directly to the seller rather than you know earnest money which is made out to the attorney typically the closing attorney but that is going to be that there's going to be some chaos with that I I can already tell you that right now but the the real question is so let me back up for a second traditionally why due diligence has been so buyer friendly is is because most people leave that termination fee area blank and by leaving it blank it defaults to zero now that's something else that Austin did not like he he said do not leave it blank put a number in there if the number is zero that's fine put a number in there well if the number is zero then yes it this is insanely buyer friendly the buyer can back out for any reason during the due diligence period with zero repercussions zero ramifications but that's not what's going to happen in the market that we're currently in now if our Market at some point shifts back to a buyer's market I absolutely can see that termination fee frequently being z and again the the reason why we've seen it happen why I've seen it happen somewhat frequently in the past is simply because due diligence wasn't used that often it was only used in in extreme instances properties that need needed tons of work typically and so it made sense if the property needs a ton of work and the buyer is not able to to figure out everything during a walkthrough it makes sense give them a free look right give them an opportunity to assess everything and if they it's just not if it just doesn't work for them then they can buy then they can back out but in a sellers market like what we have right now I don't think people are going to be giving giv too many free looks in situations where the homes are just in decent shape right if the homes are in by all appearances well-maintained I don't think free looks are going to be given I think that sellers are going to be requiring that termination fee now how much are the sellers going to be requiring this is where I have no idea I here's what I think I think it's going to to probably be most likely either $100 for some maybe 500 for some others and maybe a thousand for some others so again this is the termination fee and this is in addition to the earnest money I I suspect that most of the time the earnest money will end up being either that on purchase agreements that people send over either $100 $5500 or $1,000 seller only gets that if the buyer backs out during the due diligence period now what's the what's the importance about this at the end of the day or or what are the potential ramifications for this at the end of the day well there's a lot of them but this is going to become a major negotiation point I believe let's say you get a multiple offer situation and you've got you know Joe Smith and Jane Smith you know going back and forth competing in a bidding war for property and their offers are roughly similar but Joe has a termination fee of $500 during the due diligence period but Jane has a termination fee of $2,000 or maybe even more if she's very comfortable with the condition of the house well that's a no-brainer Whoever has more skin in the game is going to get it at the end of the day and so I think that this is going to end up being one of the most important numbers that that sellers are going to be looking at as they're reviewing different offers in in different multiple offer situations in non- multiple offer situations again we're probably going to see buyers that are trying to get a free look and sellers are going to have to determine whether they're comfortable with that or whether they just want to mandate and we might see this as well you know we see I see some listings where it says buyer must do at least 1% earnest money we might see something like that buyer must do 1% earnest money and minim$1,000 termination fee that's something that can be discussed with a seller I I typically don't encourage sellers to make those types of mandates because you never know people might make do even higher than that if you say it's got to be a minimof a certain number then probably and probably that will also end up practically being being the maximum that's often times what ends up happening is people see that and then just every offer that comes in just has that exact number on it so I prefer to leave it up to the buyer and that also tells you a little bit something about the buyer as well right those are ways to kind of read read into what the buyer is thinking if the buyer just does $100 by default then either the buyer or the buyer's agent just doesn't really know what they're doing right so telling them what to do sometimes disav Vails you from the standpoint of being able to kind of read between the lines on on what people are thinking and and what their thought processes are now another ramification here as far as repairs are concerned by default no repairs have to be done this is this is why they did away with the as is part of the contract as well is because by default it already is as is the seller does not have to do any repairs now the buyer can still ask for repairs but the seller doesn't have to do them and this is where it can can really be seller friendly is if the buyer has a large termination fee on the line let's say it's several thousand do and the buyer goes to the seller and says hey I want to you know we found a bunch of stuff that you need to repair the seller doesn't have to do any of it seller can just say nope sorry and then all that the buyer can do is either move forward or back out and then they have to surrender that termination fee so that's going to that's going to really be a a big deal in some of these situations and buyers are going to have to be very thorough during their walkthroughs and their showings and I already try to coach my buyers on doing this and try to make sure that we look at you know everything that we can when we're walking through the house but it's going to be a very important detail that the that you don't buy a house and or or get a house under contract with the huge termination fee that then ends up needing a lot of work on the flip side the buyer can ask now for anything or under repair procedure technically you could ask for anything but the seller only had to do certain items and they would just decline all the others now it's it's a lot more negotiable right let's say that you as a buyer you know you find some structural stuff you know in the crawl space and that obviously needs to be fixed right but you don't trust the seller to to fix the structural stuff and you have enough money to do it yourself but you found that that like a lot of the windows won't open and close correctly it can now be a point of negotiation that you know hey we're going to ignore the structural stuff but these windows need to be fixed or maybe they were fogged windows that was something that repair procedure specifically excluded as something a buyer could ask for now buyer can ask for that seller can say no and again this comes down to it's a leverage thing you know does the do you have leverage to get the seller to do the repairs or not in a seller's market typically you're you're not going to have a ton of Leverage if the seller is urgent to move the house okay then you have a lot more leverage and that's something that I try to read between the lines and try to understand when I'm representing a buyer try to try to get down to okay how motivated is a seller if we get under contract are they going to you know do they have all the time in the world are they on a tight time schedule are they moving somewhere are they going to you know just have the house be vacant if we end up you know defaulting or or backing out of the contract there there's a lot of things to consider when it comes to this but at the end of the day we're going to have it it's going to be chaotic for probably the remainder of the year once this goes into effect because there's not going to be a standard probably for several months it's going to take us a while to settle on some sort of a standard and I even asked Austin with SC if he has seen any kind of a standard up to this point with due diligence contracts is there anything that's like you know okay typically people do this or typ people do that and he said no there there's not been any standard but I think that there will be I think the market will settle on some sort of a standard and I suspect that it'll start with Buyers being being more cautious we're probably going to see a lot of those offers come over either with a blank termination fee $0 or $100 something like that and those buyers are just going to get out bid it's just what's going to happen and and so there will be kind of a period in which everyone needs to get acclimated to this new contract environment and you know it'll be a learning experience for everyone but that termination fee and how all of that goes down is going to to now be a big part of it now there's there's going to be I think a lot more negotiation on the front end and in the middle of of the contract as well because of how open-ended things are but all that to be said I do think that this is better because it takes out the subjectivity now it's just people can just agree on what they want to agree on they know what the expectations are upfront to a certain extent they they they understand that hey we might not be able to get any repairs done or we might be able to get a ton of repairs done or maybe if we find stuff wrong with the house we can renegotiate things but we need we have some potentially non-refundable money that is being put forth during the due diligence period and we have to be careful you know with that money I think it's going to be harmful I think it's going to be very difficult for first-time home buyers I think this this does make it worse for first-time home buyers entering into the sellers Market because now they are you know if they don't have a lot of money in the bank now they're potentially risking it when they're when they're buying a house more so than ever you you don't want buyers going under contract you know with a $500 termination fee if they only have $7,000 in the bank they've just lost a huge portion of money in the bank if they decide that they want to back out of the house so that's something that is is going to be difficult and it's going to be something that we will have to keep monitoring and have to keep following but we'll see we've got a few weeks to go before this goes into practice I'm interested in seeing how it works out I think there'll be a lot of growing pains but I think in the long run once everyone figures it out I think it will be better I think that it will end up balancing out expectations and taking out all the subjectivity that there was before of like okay is this is this repair part of the nine categories what about you know oh appliances aren't included okay why not well okay there's a roof leak but the roof has tons of hail damage you know I won't be able to get insurance on this roof because it has tons of hail damage even if they just fixed the leak now we have the ability for buyers and sellers to work things out with of course the fact that there's going to be a lot more mid transaction types of negotiations happening but hey that's what Realtors are for we a good realtor is a skilled negotiator I feel like that's something that I do well and I have a lot of clients that would support me on that and so we're going to end the show on that note my cont information if you do need a skilled negotiator it is in the show notes reach out to me by text by phone by email however you want and as always please subscribe to the show subscribe to selling Greenville and whatever podcast app you use and go ahead and leave a fivestar rating leave a short little review just to let the masses know that this show is out there and I appreciate you guys we'll talk again next week [Music]