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From Skibidi to SignedMy Top Ten Tips for Using the Newly Revised Offer to Purchase and Contract (Form 2T)
BY “LEGAL JOHN” JOHN WAIT General Counsel
This past July, the Offer to Purchase and Contract got a major facelift. It was the kind of glow up that made me look in the mirror and feel inspired to make an appointment for myself. Maybe freshen up my own face.
But then I remembered that I have three teenagers, two kids in sports, and one pre-teen who thinks “skibidi” is a real word. I had to admit that a facelift for me right now would be a waste of money, especially after I saw an Instagram post confirming that skibidi was one of the words added to the Cambridge Dictionary this year. Apparently, it is an adjective and defined as “a word that can have different meanings such as ‘cool’ or ‘bad,’ or can be used with no real meaning as a joke.”
My vanity will have to wait, but thankfully, that will give me more time to focus on forms. To celebrate Form 2-T’s new look, I thought it would be fun to write about my favorite hacks and tips I give members when they call the Legal Hotline, especially after the new version was released in July. If you want to take your forms skills to ninja level, mix in some of the following next time you use Form 2-T.
1. Use the Additional Provisions Addendum (Form 2A11-T) as much as possible to request repairs instead of the Due Diligence Request and Agreement (Form 310-T).
I understand that when you are helping a buyer, you may not necessarily know whether any repairs need to be made at the time you make an offer. However, in cases where you do know that a repair (or repairs) must be made, Form 2A11-T is a better choice.
Once the buyer and seller go under contract, Form 2-T makes clear that the seller has no obligation to do repairs, even if repairs are recommended by an FHA or VA loan appraiser. Identifying as many repairs as possible in the Additional Provisions Addendum obligates the seller to complete the repairs prior to closing, and it does not prevent the buyer from asking for more repairs later in the transaction. Which brings me to . . .
2. Do not make last minute repair requests after you are under contract.
Sellers and listing agents do not appreciate last minute repair requests, and such late requests often harm the buyer’s negotiating position. If you are negotiating repairs near the end of the Due Diligence Period, both the agents and the parties are going to be stressed out, which can lead to hard feelings and further difficulty in the transaction.
If possible, see if an agreement to extend the Due Diligence Period is possible. If an extension cannot be negotiated, then the buyer should make their decision whether to terminate or proceed before the deadline. Once the Due Diligence Period passes, then the Earnest Money Deposit becomes firm even if the buyer has a pending request for repairs, or for an extension, or both, that the seller has not yet responded to.
3. Do not hesitate to make a written demand for the Initial Earnest Money Deposit or the Due Diligence Fee using Form 355-T.
Form 2-T states that the Due Diligence Fee is due on the Effective Date. The Initial Earnest Money Deposit must be paid into escrow within five days. If these payment deadlines are not observed, the seller may make a written demand for payment, and the buyer then has one banking day to deliver (not send) the funds demanded by the seller. Form 355-T may be used to make the demand.
Listing agents and buyer agents often negotiate payment of the Earnest Money Deposit and the Due Diligence Fee outside of, and not in strict conformance with, the contract and the above deadlines. This is permissible, but it comes with risks. If agents informally adjust the above deadlines via text or email, and the seller wishes to enforce the contract as written instead, the buyer will have an argument to make that there has been a waiver of strict compliance with the contract.
In some cases, it may make more sense for the listing agent to proceed with the written demand rather than informally extending payment deadlines for the buyer. If the written demand is made, the seller will have the option to either terminate or wait for the funds if they are delayed instead of waiting out an informal deadline set by the listing agent that is not, in fact, part of the contract.
4. Use Form 2-T to negotiate cooperative compensation and skip Form 220 (Cooperative Compensation Agreement).
The Seller Concessions line in the contract now has a blank for a percentage of the sales price. Seller Concessions can be used for any purpose by the buyer, including agent commissions, the purchase price, or any other cost associated with the transaction. If a buyer uses this line to ask the seller for assistance in paying their agent, then Form 220 is not necessary.
If the listing agent, lender, or closing attorney wish to know how much of the Seller Concessions are being paid to the buyer agent, then new Form 725 (Statement of Agency Relationship and Compensation) may be used to provide that information rather than providing a copy of the buyer’s agency agreement.
As a reminder, Fannie Mae released guidance last year that buyer agent compensation paid by the seller or listing firm does not count toward interested party contributions.
5. The seller has no obligation to sign the FHA/VA Addendum (Form 2A4-T) once the contract is effective, so make sure the buyer fills out their representations accurately.
Listing agents often call the Hotline asking what to do if the buyer asks the seller to sign the FHA/VA Addendum after the parties have already gone under contract. Ultimately, the seller has a simple choice to make: sign the addendum or decline to sign.
The seller has no duty to sign an FHA/VA Addendum once Form 2-T is effective, even if the seller indicated in the listing that they would entertain offers with such financing. The seller accepted the buyer’s offer based on the representations in the offer, so once the contract is signed, potential offer terms the seller is open to in the MLS are no longer binding.
Does the same reasoning apply if the buyer wants to change from cash to a conventional loan? Well . . .
6. Form 2-T does not prevent a buyer from changing from cash to a conventional loan, but if the buyer is doing so in bad faith, the seller may have remedies.
In the contract, the buyer must indicate what kind of funds they “intend” to use for the purchase. Form 2-T further states that any change to the buyer’s funding is a material fact that must be disclosed to the seller.
This language gives the buyer flexibility to change how they fund the purchase, so long as they do so in good faith. A seller who is upset that a buyer wants to change from cash to a loan should consider that they have no obligation to change deadlines in the contract. Listing agents should keep these sorts of potential changes in mind when accepting an offer that claims to be all cash, and make sure the deadlines accurately reflect what a cash transaction should look like.
If the seller feels like the buyer has made a fraudulent inducement or a misrepresentation to trick the seller into signing, then they might consider seeking legal counsel. A successful fraud or misrepresentation claim may not be subject to the liquidated damages provision for breach of contract.
7. Do not use Form 390-T (Termination Agreement) unless you have already negotiated an agreement to terminate.
In most termination scenarios, the unilateral termination forms, Forms 350-T and 352-T, should be used to terminate the contract. Before sending Form 390-T, send a text or email to the other party and ask if they would be open to the terms of termination your client is seeking. If no agreement can be reached, then there is no agreement to terminate that can be memorialized on Form 390-T.
The unilateral termination forms provide clarity as to when the contract is terminated. These forms also preserve the buyer’s and seller’s ability to seek recourse against each other in court if they wish to do so. Sending Form 390-T when no agreement has been reached as to termination may put the buyer’s Earnest Money Deposit at risk, especially if it is sent close to the end of the Due Diligence Period.
8. Do not take the final walkthrough for granted, and give the buyer their options if repairs are not completed or if the property is not in substantially the same or better condition.
If on final walkthrough the buyer discovers that the seller has removed a fixture the buyer expected to receive at closing, or failed to perform an agreed-upon repair in a workmanlike manner, or left the property a mess, then the buyer has a choice to make: hold up closing or accept the property in its current condition.
If the buyer holds up closing, they will not be the delaying party so long as they are ready, willing, and able to perform. This means that if the seller cannot fix the issue within the seven-day grace period, then the buyer will have a right to terminate and seek damages for the seller’s breach. Or the buyer may seek specific performance or other remedies.
The foregoing option has some risk for the buyer, but if buyer proceeds to closing instead, their ability to seek relief against the seller will be very difficult. Form 2-T makes clear that a buyer’s closing means they are accepting the property in its current condition. If the current condition includes a seller breach of some kind, then that is what the buyer is accepting.
9. Make sure the seller is disclosing all unpermitted improvements and any other governmental compliance issues.
A seller who does not disclose unpermitted improvements may be subject to the consequences of paragraph 8(h) in Form 2-T. Paragraph 8(h) states that if the seller receives notice about a governmental compliance issue, and does not cure the issue prior to closing, then the buyer may terminate and receive the Earnest Money Deposit and the Due Diligence Fee. Listing agents who fail to discover and disclose unpermitted improvements may be disciplined.
If a permitting office states that they have no files, then ask the permitting agent to send you an email confirming that information. Many times, that request will cause permits or applications to surface that were not available before.
10. Assume that either the buyer or the seller will need the seven-day delay period, and caution your client – whether the buyer or the seller – against moving plans that assume closing will be on the agreed upon date in the contract.
Too often, agents call the Hotline complaining that either the buyer or the seller are using the seven-day delay when they should not be, and the delay is messing up their client’s moving plans. Unfortunately, there is usually little that can be done.
Even assuming that the delaying party is using the delay when they should not, the timing is too short to file a lawsuit and get relief from the court. Obviously, circumstances change dramatically on day eight when the delaying party has a right to terminate. However, until that time, clients should know that the seven-day delay is a common occurrence and plan their move accordingly.
