The Texas Association of REALTORS has recently released a form that buyers and seller can use as part of their real estate transactions. We’re going to take a look at it and break it down – should you use it to buy or sell a home at Mueller
What does the COVID-19 Addendum say?
Here’s a copy of the COVID-19 addendum to download, and here’s the text of it and a brief summary of what it would mean to a buyer or seller.
Delay of closing due to Coronavirus and possible cancellation of transaction
Automatic Delay: Notwithstanding any other provisions of the contract, Seller and Buyer agree that in the event the closing as defined in Paragraph 9 of the contract is not able to be performed due to a voluntary or mandatory SARS-CoV-2 (COVID-19) virus quarantine or closure, either party may, by providing notice to the other party, extend the Closing Date for a period of thirty (30) days. If any portion of the closing is still not able to be performed upon the expiration of the extension, either party may, by providing notice to the other party, terminate the contract without any further liability to the other party, and the earnest money will be refunded to Buyer.
In a nutshell, if the closing can’t happen due to COVID-19, then as long as either party notifies the other, then closing is extended for up to 30 days. Beyond that if the closing still can’t happen, the deal is off and neither party is bound by the original Earnest Money Contract.
This protects both the buyer and the seller from their deadlines in the contract if they can’t physically turn up to sign at closing.
If the buyer loses income, the contract may be terminated without penalty
Seller and Buyer agree, notwithstanding that Buyer may have removed their financing contingency, that if Buyer is not able to fund their loan and close due to Buyer’s loss of income from COVID-19 related issues, then either party may terminate the contract and earnest money will be refunded to the Buyer.
In a nutshell: If the buyer loses income due to COVID-19 issue and can’t get the loan, then the buyer or seller may cancel the transaction.
So if the money for homes purchased with a loan isn’t forthcoming, both parties can move on. This doesn’t apply for cash purchases, so as always, cash is king (or queen) for offers to sellers. Over 21% of Mueller market rate resales in the last year have been cash purchases, and that rises to 50% in the 1,700-2,300 square feet sales.
Try to close and borrow online, find other people to do in-person work
The parties will exercise best efforts to utilize remote services to perform obligations under the contract that otherwise cannot be performed in person due to a voluntary or mandatory COVID19 virus quarantine or closure
In a nutshell: just like everyone else, try to do as much online as possible during the pandemic.
At present there are many documents that can be completed using electronic signatures but most attorneys require physical signatures on closing papers. Other parties to a transaction include inspectors, appraisers and agents. If they physically can’t attend, then the whole process can be delayed.
The buyer’s option money is still at risk in the process. If a buyer can’t physically get an inspector out to the property, then how can they negotiate repairs? A buyer loses any negotiating power if repairs can’t be agreed before the end of the option period. So a buyer can seek to extend the option period until such time as an inspector can attend, or terminate.
Can I use an online notary to close my Texas home purchase?
Maybe, or maybe soon. Texas was the third state to permit notaries to perform remote notarizations in 2018. Notaries use online video to identify a client and to authenticate their signature. As yet, this is typically only permitted in rare cases by lenders and title companies, but this may change given the current pandemic. It would make a lot more sense to sign online than to pile people into Title Company offices and ply them with snacks and drinks.
Do I have to Use the COVID-19 Addendum?
Absolutely not. It is not mandatory on any transaction. In fact, the guidance notes start of with:
Use of the COVID-19 Addendum is not mandatory and may not be appropriate in all circumstances.
As with everything in real estate, it’s a negotiable item. There are already other addenda which can be used to extend a closing.
As a seller, I’d weigh up what the disadvantage is to enter into a contract with more contingencies and possible delays to the advantage of offering flexibility in the time of uncertainty. As Mueller has been a strong seller’s market for the last handful of years, more power rests with the seller in negotiations at the moment. That said, market extremes don’t tend to last for very long, and when things change, the change can be steep and fast.
As a buyer, I wouldn’t want to get to the day before closing to have a 30 day delay and then subsequently a potential termination. Everyone has a very different perspective based on their conditions and hopes and fears for the future. I would like up professionals and back-up professionals to reduce risk of delays.
To really answer the question, talk to your REALTOR. They may refer you to an attorney, but they can talk through the implications for your case.
Who does the COVID-19 Addendum protect?
With so much uncertainty at present, the potential for wild volatility and fear in markets is great. I think this addendum is designed to address that fear and to give both buyers and sellers a way out if the worst happens.
Cynically, you might say that the addendum is designed to protect REALTORs first, as they are the trusted ally in a home purchase, yet they might not have all the answers their clients need.
Remember, it is prohibited for a Texas REALTOR to give legal advice unless they are separately qualified as a lawyer. The promulgated forms are really to simplify the legal contract to buy a home and to cover as many common eventualities as possible in the transaction.
Buyers and Sellers are advised to CONSULT AN ATTORNEY BEFORE SIGNING
The addendum also protects the buyer and seller. If the closing can’t go ahead due to quarantine or closure, then the closing can be delayed up to 30 days. Then if closing still can’t be completed then either party can cancel the contract. There are a lot of “get out of jail free” cards in this addendum.
Real estate purchase contracts are contingent on income, loans, availability of title companies, lenders, appraisers, agents and inspectors. If anyone in the chain is unavailable, then the whole chain can break.
What can I do if I really need some certainty in the sale / purchase?
First, get a good REALTOR who has a long history of transactions and business experience. A REALTOR for whom this isn’t the first rodeo.
Then consider whether you really want to add additional contingencies to the contract such as this one.
If you’re a seller and you’re concerned about inspector availability, get your home pre-inspected on your own timeline by a reputable home inspector and provide this to prospective buyers (especially if you can repair any defects before sale – all part of good staging advice).
If you’re a seller, put a higher value on cash offers.
Ask your title company if they can provide online closing facilities to the parties.
Things are changing so rapidly during the Coronavirus / COVID-19 pandemic, that sometimes planning for the worst and hoping for the best is all that we can do.
If you want advice on how to market your home during the Coronavirus pandemic, give us a call on 512.215.4785.