Pete Fortunato has a wonderful way of defining contracts. He says a contract is a memorial of the meeting of the minds.
Isn’t that poetic?
For us real estate investors, our paper work tells the story of what happened when the buyer and the seller had a meeting of the minds and agreed to a deal.
Sometimes I think we lose the simplicity of that and over complicate our forms because we’re trying to mirror the contracts that we’ve seen standardized by the Georgia Association of Realtors. They’re called GAR forms for short.
Are the GAR forms great? Yes. That’s because the Georgia Association of Realtors spends a lot of time and money having their attorneys revise them annually. Are they perfect for all the scenarios that investors encounter? No. And truthfully, if an agent isn’t involved in your transaction, you aren’t supposed to be using any of the GAR Forms anyway.
We had something crazy happen while we were selling a house using a GAR purchase and sale agreement (PSA). We’d been under contract for three months – it was one of those deals from Hell. To make a long story short, we were hoping our buyers could get the financing to take this house off our hands.
A week after the last possible extensions had expired, we got word that the buyers couldn’t get financing. It’d been three months and one week since we placed this house under contract, and I wanted it back on market ASAP! My listing broker said we had to wait for a signed termination of contract before we could do anything, though. I asked why this was the case since the contract had been dead for a week?
The broker responded, “A contract never ends until you have a signed termination.”
I asked why contracts contain dates and why extensions are needed if they never expire without signed terminations. I also asked what happens if a buyer refuses to sign the termination.
I was sure the broker was mistaken about contracts never ending. In an attempt to prove it, I went and read the GAR PSA line by line. Believer it or not, the date I was assuming to be the expiration of the contract is referred to as “the closing date.” As I read further, the document never defines it as a maturity date or an expiration date; it doesn’t contain any language that assures that the contract terminates after this date.
That freaked me out so much I called my attorney. He disagreed with the notion that a contract never ends without a signed termination. He said if that were the case and you couldn’t get a termination signed, it would create a title flaw on the property because a PSA is basically an unrecorded option. He also pointed out that if the closing date was not also meant to be the contract’s maturity date, there shouldn’t be stipulations for extensions.
Our ex-buyers weren’t in any hurry to terminate the agreement; it took an additional three weeks before we got a signed termination. That was a total of four weeks past any extension! I was irate.
After talking with many other agents, I found they predominantly agreed with my attorney and that perhaps someone was getting the procedure of when earnest money could be dispersed confused with when the contract ends. Either way, I think this is something the GAR attorneys should address next time they make a revision to the PSA.
So should you be scared to sign a GAR PSA? Why no. They’re great forms, and there’re used in the majority of closings. But if this issue makes you nervous, write into the special stipulations section a statement like, “This contract expires on the closing date unless an appropriate extension is utilized.” That should take care of it.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.