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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
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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
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again next week
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