On November 1, 2021, the Florida Association of Realtors in conjunction with the Florida Bar (FR/BAR) released updated Residential Sales Contracts and accompanying riders. Many of the changes are insubstantial in that they are intended to make the contract template cleaner from a drafting perspective. However, there is one significant change to be noted by residential buyers and sellers, or anyone who engages in residential real estate transactions as a regular part of their business.
Revised, Streamlined Obligations in the Loan Approval Period
Section 8 of the template previously delineated the Loan Approval Period, stating that a Buyer needed to obtain approval for financing within 30 days of the agreement unless a different timeline is agreed upon. The Buyer was not required to deliver necessary appraisals during that time – they only needed to keep the Seller and Broker informed of the process and make sure the appraisal, if needed, was approved by the Buyer’s lender prior to closing.
The new Section 8 cleans up the financing process to ensure that financing is fully approved prior to the expiration of the Loan Approval Period. Specifically, unless the transaction is a cash deal, the Buyer must gain approval from a qualified mortgage lender, and submit any necessary appraisals upon which that approval is conditioned, prior to the expiration of the Loan Approval Period, which is typically 30 days.
This new requirement mandates that Buyers produce clean and reliable financing approval earlier in the process, so that residential transactions do not make it to the closing only to be blown up by a rescinded approval, due to Buyer’s procrastination on delivering appraisal information to their lender. Furthermore, the requirement that the Buyer keep the Seller reasonably informed regarding financing from the outset to the closing of the transaction has been removed.
Full Financing Approval Makes Residential Transactions Smoother
The tightening of the financing provision is beneficial to both buyers and sellers, and facilitates a more efficient real estate market here in Florida. While the Buyer is required to do more upfront due diligence to get the transaction to close, it is due diligence the Buyer was always required to do, and ensures that it is done faster and more reliably. This change takes inefficiencies due to miscommunication between the parties out of the equation, as it requires the parties to produce a fully approved financing option within 30 days of the agreement to the transaction, rather than allowing the parties to move forward on loose pre-approval standards.
This allows the Buyer to focus on other important aspects of the closing such as title, insurance, and any material deficiencies to the residential property, and provides peace of mind for the Seller, because they can move forward knowing that the most important part of the transaction for them – the financing for the sale price – is taken care of moving forward. He or she knows she has a deal. On the other hand, if the approval is not met within in the period, the Seller has not taken their home off the market for so long as to make it difficult to relist the home and start the selling process over again, which is not only good for the Seller, but also good for the facilitation of a smooth and efficient Florida real estate market.
So, What About the Other Changes?
The only other major change to be aware of is a change in the template regarding what constitutes sufficient notice under the contract. Previously, notice from one party to another was sufficient where one transmitted notice to another by means of “electronic media.” Given the term’s broad meaning and lack of specific definition under the template, parties were using the vague language to argue that text messages were sufficient notice under the contract. The new template now specifies that the only form of electronic notice acceptable is email.
The remaining changes pertain to little-used sections of the template, and will only come into play in certain transactions, including changes to FIRPTA withholding, special assessments, and watercraft lifts. Finally, the force majeure provision has been adjusted to include government shutdowns and pandemics as well as civic unrest, a change that clearly comes in response to the events of the past two years. In summation, the changes to the Residential Sales Contracts aim to simplify and streamline the process of financing approval, granting peace of mind to, and lowering the risk factor for, all parties involved in a residential real estate transaction.