What is a Georgia Real Estate Sales Contract?
A Georgia real estate sales contract is a legally binding agreement in which the seller of a parcel of real estate agrees to convey the property to the buyer for a price and other terms. In other words, sales contracts are where the parties to a real estate transaction agree on the sale and purchase of a property. The contract is the framework upon which the details of the sale are organized.
A sales contract is critical to the sale and purchase of a property for a number of reasons. First, it is evidence of the agreement between the parties. Without the contract, neither the buyer nor the seller would have an objective way to show the terms of the deal to any interested parties (like lenders or the courts).
Second, a real estate sales contract provides the seller with a level of comfort knowing that the buyer is serious about actually buying the property. This is accomplished through the earnest money deposit described below .
Third, the real estate sales contract provides guidance for the parties in the event that things do not go as planned. For example, what happens if the closing is delayed? What if the home inspection shows that the air conditioning unit is broken and the seller does not want to pay for a repair? What if the buyer needs to cancel the deal prior to closing for any number of reasons?
This all being said, the real estate sales contract is not a static document. The Contract is an invitation for negotiations. In other words, each sales contract will look a little different based on what the parties negotiate. For example, while clauses regarding the earnest money deposit are the same in all contracts, the amount of the earnest money deposit is often negotiated and outlined in the agreement. Another example is deed and title provisions, which address how the title of the property will be conveyed from the seller to the purchaser. These provisions are not universally accepted and may vary from deal to deal.
Essential Components of a Georgia Real Estate Sales Contract
The Georgia real estate sales contract is a legally binding agreement that must contain certain elements to be considered valid. When entering into this as a buyer or seller, consider the following:
Purchase Price: The price for which you are buying or selling the property.
Legal Description: This may be the street address and subdivision name or may include a metafile. You can find the legal description of your property from a title company or your deed.
Closing Date: Typically within 30 to 60 days, but can be longer or shorter. This is the date upon which the buyer takes possession.
Loan Information: It is essential that you include the amount of the loan you are obtaining for the purchase if it is contingent upon obtaining financing. Be careful when choosing conformance dates to ensure you have enough time to obtain that financing.
Contingencies: There are many possible contingencies that can be included, from appraisal and financing contingencies to inspections, repairs and even sale of the buyer’s existing home. These are critical to include to ensure your contract is protected.
Closing Costs: Items that are included in the sale price can be listed to be paid for by the seller. Then the buyer’s agent can negotiate with the seller to determine who pays for what.
Common Contract Contingencies in Georgia Real Estate Transactions
Within the Georgia Real Estate Sales Contract, there are a series of contingencies that, if included in the contract, must be satisfied before the contract is binding and enforceable. It is the duty of the real estate professional to make certain that the Georgia Real Estate Sales Contract includes an explicit agreement that all of the contingencies of all parties to the contract must be satisfied in order for the contract to be binding and enforceable.
If an item that needs to be done in order for the contract to be binding and enforceable is excluded from the contract entirely then the Georgia Real Estate Sales Contract does not become binding and enforceable unless or until the party who needs to do such item does so.
Some of the commonly used contingencies in Georgia Real Estate Sales Contracts include Home Inspection Contingency, Financing Contingency, Appraisal Contingency, Parties obtaining Home Owner Association (HOA) documentation, Termite Contingency, Financing Contingency, and Loan Commitment Contingency.
It is critical that the broker or agent advise his or her client to read the sales contract carefully to make certain that the client understands all the terms contained in that contract. It is important that all of the contingencies that a party to the transaction insists on be specifically set out in such contract. Otherwise, the party who requires such items to be done will have to perform those items at a later date and will have an obligation to do so that he or she might not realize.
Preparing a Real Estate Sales Contract in Georgia
A Georgia real estate sales contract must be prepared accurately to set vital deadlines for the buyer and seller and create enforceable obligations. Many if not most real estate sales contracts are completed by a buyer’s real estate agent using a standard form. The agent takes the lead in setting up the forms and negotiating the deal with the cooperation of the seller’s real estate agent.
Most agents will also have the buyer or seller hire a closing attorney to prepare and ultimately process the closing. Because the standard form can be a bit tricky, getting attorney help to complete the real estate sales contract can save time and mistakes later in the deal.
Some real estate firms offer an online service where buyers can complete a real estate sales contract directly with online forms and an online interface. This may be appropriate for simple transactions plus it does leave the buyer without direct attorney resources as well as it might be otherwise. One benefit of doing your own online forms is that you don’t have to pay the fee of the buyer’s agent and be held to a minimum five percent commission agreement. The downside is always the lack of professional help to make sure your documents reflect the expectations of the parties.
If you use an agent who is a member of your family or a close friend, however, they may let you do your own online forms but be much more concerned about how they relate to their friend—the other party to the real estate sales contract—than on protecting your interests in the deal. Remember, the agent has a relationship with the seller. Make sure a friend’s motives are not hidden.
It’s also possible to hire a Georgia real estate closing attorney to draft the real estate sales contract from scratch. Most forms contracts are useful, but you should definitely review and follow the advice of any attorney you buy these forms from. Some real estate agents recommend that the buyer save money and go without an attorney during the sale.
We do not recommend this. Why not? Well, once the contract deadline passes and you lose the right to remove a contingency or so and then the seller wants you to buy the house, it is way too late to get an attorney involved free of charge to help you.
The candidate for the title of least useful and even positively harmful real estate sales contract is the offering of property where the prospective buyer is simply invited to do their own online forms and then disclosed to have signed a deal where the earnest money is never returned. Even more so than simply buying a regular form, this will probably leave you with no way to resolve mistakes or misunderstandings at the closing and it puts you on the hook for a potential lawsuit to recover your deposit.
We recommend you always get an attorney involved in constructing the deal and obtaining information and resolving misunderstandings before you find yourself on the wrong side of an unexpected $1,000 loss.
Potential Legal Issues and Common Missteps
Mistakes in the Georgia Real Estate Sales Contract often arise when a party is not fully aware of the legal implications of each term, clause, or other provision within the agreement. For example, most people signing the exclusive listing agreement (between a seller and real estate broker) do not understand the legal ramifications of that agreement when it comes to the commission split with the buyer’s agent and how that’s ultimately paid at closing. We have seen countless instances where the seller entered into an agreement without negotiating that term. The same holds true for buyers when they sign an offer to purchase without understanding the implications of the earnest money, the amount of it, and how it will be paid at the time of contract or closing. Many also fail to realize that the earnest money has a direct correlation with the terms of the offer, which could mean reduced negotiating leverage on the part of the seller if the buyer only has to invest a small amount of money to bind the sale. Buyers and sellers are often unaware of the need for an additional written agreement to waive a survey, if desired. Some real estate professionals and brokers forget to advise their clients of this legal requirement.
Aside from what we’ve experienced ourselves, the case law and statutory changes give us a crystal ball into the common pitfalls. In Hall v. McRae, et al., the Georgia Court of Appeals held that a listing broker was not entitled to a commission share when his real estate agent failed to advise the owner of the existence of the commission agreement, nor did he collect a signed copy of it from the purchaser. While a licensee can be a dual agent for a fee and it is legal in Georgia, the attorney fees were not awarded to the broker because the commission agreement was silent as to the party who would bear those fees. Additionally , advertisements in an association publication were not enough to put the seller on notice that the broker had a commission agreement and that he was entitled to money when the house sold. One of the reasons for the ruling may be because the seller didn’t sign the listing agreement confirming an agreement to pay the commission, and because it was in multiple places within the agreement, a court might have trepidations as to what the parties’ true intentions were.
In Morgan v. Bunting & Lee Inc., there were similar issues with the commission agreement. The Court of Appeals reversed a grant of summary judgment for the real estate broker because the contract did not specify to whom commissions would be awarded and because it involved a contingency fee to which the Real Estate Settlement Procedures Act applied. Without proper language to show that the parties would be responsible for their own attorney fees and there being no enumeration of circumstances under which fees would be charged to the other side, it was not clear enough to avoid a lacking of consent sufferable under Evidence Code Section, so the award of attorney fees was overturned.
There’s also the failure to disclose matters that could materially affect the value or desirability of a property. It is a material breach of a contract if the seller fails to disclose known dangerous conditions or material defects of the property. For example, if criminal activity has occurred in close proximity and the sex offender registry is within several blocks, that’s an issue that may need to be disclosed. A real estate developer also failed to disclose an issue with the property line that had not yet been determined with certainty by a professional surveyor, and the purchaser claimed loss of enjoyment of having a better view after the fence was put in and the landscaping was done. The Court of Appeals ordered that the purchaser’s claim should not have been dismissed summarily and remanded it back to the superior court where that determination would lay.
Change of Terms and Contract Termination
Amendments are a common way to handle changes that occur during the course of a transaction. If the buyer and seller want to reorganize the terms or make additions or deletions, commonly known as "adding, deleting and binding," the easiest way to document those changes is through an amendment. The agreement may be amended at any time, so long as all parties sign the written agreement to amend.
A contract may also be terminated by mutual agreement, or upon occurrence of a condition or expiration of a time period. The ability to terminate the agreement depends on the provisions of the contract. For example, the Georgia Real Estate Sales Contract provides that the buyer may unilaterally terminate the contract for any or no reason within a certain period of time after the effective date of the contract. What happens to earnest money if the buyer unilaterally terminates the contract? If the buyer validly terminates the contract as provided in the contract, the broker may release the earnest money to the buyer. If the buyer terminates the contract without exercising a right to terminate, the seller may keep the earnest money as liquidated damages. In the case of a mutual termination, (for example, if the buyer fails to disclose to the seller within a certain time period after the effective date of the contract that he or she is not a U.S. citizen, or if the contract was entered into by a foreign corporation under an invalid power of attorney) the broker will hold the earnest money according to the terms of the contract.
Complete Contract Performance and Closing
Once the Georgia Real Estate Sales Contract is signed, the work has just begun. While there may be a deadline for closing written into the contract, closing is not going to happen until the conditions of closing are met. While the contract may specify the items upon which the closing agent is supposed to be able to rely, these items are not controllable. These may include such things as an unrecorded plat, or the contemplated disbursement of loan proceeds. These items are things that the closing agent may need from an outside source, and if the outside source cannot come through, closing cannot occur on the scheduled date. There are also conditions precedent, the things that both parties know have to occur before closing. For example, in any closing it is expected that the lender’s funds will come through. It is the job of the closing attorney to have a closing package that has been prepared with the lender before the closing date arrives. From this package, the attorney or closing agent can determine when the funds will actually arrive . There are various safeguards to avoid the situation where the closing occurs, but the funds do not come in the following day. The closing agent may agree to act as an escrow agent for these funds, to be released the next day when the funds arrive, for example. There is an expectation that sellers and buyers are ready, willing and able to complete this transaction. That means that all the circumstances surrounding the sale have to be clear. It is not uncommon for negotiations regarding the sale of the property to continue all the way up to the moment before closing itself. Therefore, the closing agent/attorney’s job is to pay attention to the changes both parties want and make sure they are reflected in the documents to be executed. Money is exchanged. In some situations, earnest money is applied as down payment on the purchase of the property. This means that the parties already have a level of commitment to the transaction. Title insurance is exchanged. In Georgia, title insurance should be placed in force at the time of closing. The seller is paid and the property is transferred.