Ask McEnearney: What terms are negotiable in a real estate sales contract?

This week’s Q&A column is written by Rebecca McCullough of McEnearney Associates Realtors®, the leading real estate firm in Alexandria. To learn more about this article and relevant Alexandria market news, contact Rebecca at 571-384-0941 or email [email protected]. You may also submit your questions to McEnearney Associates via email for response in future columns.

Question: What terms are negotiable in a real estate sales contract?

Answer: I often write articles about current market conditions, because let’s face it, it’s been fun to write those articles for the past couple of years. My last article was about how the market is changing. That continues to be true. The market certainly changed — interest rates have more than doubled, and buyers are largely hibernating.

Despite this, I believe housing prices will remain somewhat consistent over the next year and buyers will adjust to the new rates. As wise investors in any arena will tell you, it’s impossible to time the market. Buying a home is no different: buy what you can afford, when the time is right for you. If rates go up, you’ll be glad you bought. If they go down, you can refinance.

In this current environment, now that buyers can take a breath and really think about what they want to offer a seller, buyers need to understand what a Virginia housing contract entails, how it protects them, and what it does not protect them from.

The Virginia Residential Contract

In Northern Virginia we use the “Residential Sales Contract” that is suggested by the Northern Virginia Associate of Realtors (NVAR). It is 11 pages with 33 sections. Over time it has evolved with the changing market conditions. Typically, we see tweaks in January and July of every year. Sometimes changes are administrative, and sometimes they are deal-altering.

Here’s a recent example: until January 2022, the contract stated that an earnest money deposit needed to be delivered to a broker or settlement company within a certain number of days post contract ratification. During one transaction where I was representing the seller, I was nervous about a buyer who had not yet delivered their deposit per the terms of the agreement. I looked into what my recourse was. There was none. Hmm. No credit to me, but not too long after that the Northern Virginia Association of Realtors contract committee, likely having some pushback for this “no recourse” scenario, changed the Residential Sales Contract such that if a deposit is not received by the stated timeline in the contract, the seller has the right to void the contract.

It is useful to know that, generally speaking, the buyer holds almost all of the cards after a contract is ratified. The only way a seller can terminate a contract would be the above-mentioned earnest money deposit situation. All the terms are such that the buyer has control of the decision to void a contract if they cannot come to terms with the seller.

The contract itself is quite simple. There are a few details a buyer will determine in his or her offer. They are:

  1. Price
  2. Type of Financing, if any
  3. Down Payment/Earnest Money Deposit
  4. Settlement Company
  5. Settlement Date
  6. Are they going to have an inspection and/or radon test
  7. What will convey (remain) in the home upon sale
  8. Are they going to do a lead-based paint inspection
  9. Whether they would like a wood-burrowing insect inspection
  10. Whether the buyer would like a home warranty

Then, the remaining sections explain to the buyer and seller general, but very important, information about what the contract is and is not intended to do.

Each of the ten items above are negotiable. Sometimes, one particular aspect can make or break a deal. The settlement date is a common example: if the buyer cannot close for two months, the seller may not agree to the contract.

One of the most hard-fought negotiations is the home inspection. If a buyer chooses to have a home inspection it can either be for information purposes only, and if they feel that after the inspection, they are not comfortable moving forward they can void. Or they can maintain the right to negotiate repairs based on the inspection results. The buyer will send a list of requested repairs to the seller, and they will attempt to agree on what will be done. There are cases where the buyer and seller cannot agree, and the buyer has the right to void the contract at that time.

Virginia is a “buyer beware” state. It is up to the buyer to determine the condition of the house and whether they would like to move forward with the transaction. There are a lot of misconceptions about what the seller must disclose to a buyer when they put their house on the market. What the seller needs to disclose is detailed in the Virginia Residential Property Disclosure Statement. It is surprisingly very little (deaths, presumed hauntings, damage that has been repaired, and what is going on past the four corners of the property, to name a few, are not included).

Disclosure is a hot topic in real estate transactions. One situation that gets tricky is when sellers disclose issues with the house to their listing agent. Agents have a higher level of disclosure requirements than sellers. Take this hypothetical example: say the seller didn’t know there was a leak in the basement, but a home inspection found it. The seller refused to fix it, and the buyer voided the contract. Now the listing agent is aware of the leak and is required to disclose it to any future buyers. So, what options does the seller have? Disclose the leak to potential buyers or get a new agent who isn’t aware of the issue.

The Residential Sales Contract is there to protect buyers and sellers, and to do its best to level the playing field. Knowing how to complete a contract, understanding what it states, and being able to interpret it is a vital role of an agent. Your agent should go through the contract with you when you are making an offer. In the wild ride over the past couple of years we have seen too much haste in some cases. Make sure you take the time to understand the document you are signing.

Rebecca McCullough has built a successful real estate business in Alexandria and Northern Virginia by providing excellent service to her clients. If you would like more information on selling or buying in today’s complex market, contact Rebecca today at 571-384-0941 or visit her website RebeccaMcCullough.com.

If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: [email protected] or call 703-549-9292.

McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. www.McEnearney.com Equal Housing Opportunity. #WeAreAlexandria