PAR’s Legal Hotline attorneys held a Best of the Legal Hotline: Standard Forms Edition webinar yesterday discussing frequently asked questions on standard forms, specifically, Seller’s Property Disclosure, Appraisal Contingency Addendum, Price Escalation Addendum and COVID-19 Property Access Notice.
The updated Form SPD is being released on July 1. According to Brian Carter, staff attorney, the revisions are based on member feedback and not due to any changes in the law. If you already have a disclosure form filled out for a listing, there will be no need to update the file with the new form, Carter said.
“One of the changes that we made in the form itself is to paragraph 16,” said Desiree Brougher, staff attorney. Many consumers – and agents – misunderstand the point of the question and believe that any item listed in paragraph 16 is automatically going to be included in the transaction, so PAR has strengthened the explanatory language to make it clear this is not the case. As Brougher explained, “This is a question that is very frequently misunderstood. It doesn’t need to be hard; people just need to read the question. Just because it is listed here in the form or the MLS does not mean it is included in the sale.”
Paragraph 17 (pools and spas) and Paragraph 18 (windows) are both new, as they seemed to generate many transactional questions. These questions are not intended to substitute for potential inspections, said Kacy Clouser, staff attorney.
“It is to give some additional information to the buyer. If there are any issues with skylights, for example, they may dig deeper on what they want to do,” she added.
More information can be found in “New and Improved Seller’s Disclosure Statement”, as well as on the Seller’s Property Disclosure page.
Form ACA receives quite a few calls on the Legal Hotline, said Carter. A revised appraisal contingency will also be released July 1.
“The changes are driven by what’s going on in the market right now,” said Carter. “We see a lot of agents do a lot of things with language. A lot of it isn’t done very well and causes more problems.”
One of the biggest issues is the “appraisal gap,” where the appraised value is significantly lower than the agreed-upon purchase price. PAR is seeing more and more misunderstandings about what remedies a buyer may have in that circumstance, and whether sellers should ever be required to lower the agreed-upon price in that circumstance.
If the appraisal comes in low, the purchase price is still the purchase price, said Brougher.
“Nothing requires either party to change the amount of money they were going to bring or accept in the transaction,” she said, “and these revisions help make that clear.”
While Form PEA has not had any changes, Carter said that the current market is generating many more calls than usual about the form. Many of those calls are based on agents not thoroughly reading the text of the form and existing PAR resources.
For example, it is important to understand the specific definitions of the terms purchase price and net purchase price, explained Clouser, and how to calculate them. And it is critical to understand how the form treats transactions where multiple offers contain escalation clauses. These and other scenarios were covered in a JustListed article and the form guidelines have several specific examples (with numbers and math) to help make it easier to understand.
But the most direct suggestion came from PAR General Counsel Hank Lerner, who said, “If you are looking at a situation with multiple escalation clauses and you’re getting confused about how they play off of each other, the best solution may be to just sit with the seller and pick the offer you like the best and counter it. It is often just easier with one-on-one back and forth negotiations.”
Lerner added that if you are using Form PEA, as well as Form ACA and mortgage contingency, it can get confusing. “Make sure you are reading them as a package and not individual forms,” he said. “There shouldn’t be anything contradictory in each of the forms used in the transaction.” He also advises that where there may be confusion, the best approach is often to pick up the phone and talk to the other agent to be sure that both have the same understanding of the language.
Finally, Form COVID-PAN will see a comprehensive update on July 1, at which point the COVID-HSA form will be discontinued. The revised form still has some basic information and a liability waiver, but instead of setting out specific rules for buyers and sellers it merely reminds the parties to stay safe by following relevant health and safety guidelines, and that sellers are entitled to put restrictions on property access if they so desire. The form, or any part of it, is not required, but “it covers most of the bases you want to cover as an agent or broker giving this to your client,” Lerner said.
Finally, all the attorneys stressed the need for brokers and agents to “use their resources” when trying to determine how to use a particular form. Prior to calling the PAR Legal Hotline, agents are encouraged to search JustListed for relevant articles and to review form guidelines to see if the question is answered there. And agents should always check with their broker/manager before calling, since that conversation can sometimes answer any questions – and agents are often directed back to their brokers after hotline calls anyway.