Faced With Uncertainty, Home Buyers Seek Coronavirus Clauses in ContractsOriginally published in Mansion Global
by BECKIE STRUM
The amendments would allow buyers to postpone or even break a deal without penalty as states go on lockdown and economic crisis looms
Real estate agents, racing to keep home sales from falling through, are writing special coronavirus clauses into offers and extending contracts as more than 100 million Americans from California to New York are ordered to stay at home to prevent the spread of the coronavirus.
Stay-at-home mandates have expanded from just a few counties in Washington and California to entire states on both coasts and Illinois, encompassing the three biggest cities in the U.S. and many of the country’s luxury housing hubs. The rules have seriously disrupted home sales, which often include face time among multiple parties and stakeholders, including buyers, sellers, agents and lawyers.
Many deals are in a state of limbo if appraisers can’t appraise or inspectors can’t inspect ahead of a scheduled closing, or worse, if one of the parties involved in the sale gets sick. To mitigate the overwhelming uncertainty, buyers are now adding clauses that allow them to postpone closings or even back out entirely from deals without penalty should Covid-19 derail the process.
“The general concern is that buyers would like to adjourn the closings to a later date,” said Ilyse Dolgenas, special counsel of the real estate team at Withers Worldwide, who works primarily with high-net-worth clients in New York.
In the city, many condos and co-ops have put in place sweeping “no move in, no move out” rules to limit importing the virus to buildings, where it could spread rapidly among residents.
But that presents a dilemma for someone who buys a home they cannot access.
“You don’t want to be in a position where you have to pay the carrying costs on a new home, but you can’t move in until this is all sorted,” Ms. Dolgenas said, especially in Manhattan, where monthly building fees can amount to tens of thousands of dollars in the borough’s affluent neighborhoods.
The language in Ms. Dolgenas’s clause pushes the closing to some number of days after the coronavirus is no longer deemed a public emergency.
Contract law in many states offers some sort of provision for so-called “acts of God” or other unforeseen and totally unpreventable circumstances.
Such a law has existed on the books in California since the 1870s, and excuses someone who fails to meet a contractual obligation if prevented or delayed by “an irresistible, superhuman cause.”
But there’s no certainty California courts would deem coronavirus a “superhuman cause,” and it would take one-to-several years to find out if someone brings such a case. Instead, real estate associations in states like California and Florida have drawn up a form to tack onto sales contracts that spells out buyer protections in light of the health crisis.
“There might be delays, bank delays, title company delays, with everything that’s going on,” said Gov Hutchinson, assistant general counsel at the California Association of Realtors, who helped draft a coronavirus amendment now available to the trade organization’s 200,000 members.
The extra form automatically extends the closing date by 30 days in case of a coronavirus-related delay and allows the buyer to back out without losing their deposit in case the disease upends, for example, their ability to get a mortgage.
It’s too soon to say whether sellers will be amenable to such stipulations, and some might balk at coronavirus clauses. But it’s really in their best interest given the level of mounting uncertainty, said Billy Rose, founder and president of The Agency in Los Angeles.
“I could actually see situations where it could also benefit the seller,” he said, for instance if they’re headed to close and then the county recorder’s office is mandated to shut down. In that case, the virus clause would simply push off the closing. “It’s something that should be used with every buyer.”
In Massachusetts, where two contracts, first the offer and then a more detailed purchase-and-sale agreement are signed before closing, agents at Gibson Sotheby’s International Realty are writing up all initial offers with a broad coronavirus clause that states the buyer and seller will have to mutually work through any delays caused by the pandemic, said Colleen Barry, CEO of Gibson Sotheby’s.
It says, “we both agree that we’re going through an unusual station with Covid-19,” said Ms. Barry, whose agency handles hard-hit Boston as well as coastal areas north and south of the city and Cape Cod.
The housing market there has already gotten a reprieve on some aspects of the sale that must be conducted in person, Ms. Barry said. For instance, buyers can defer the smoke detector and carbon monoxide safety inspection until after the close since some fire departments in Massachusetts aren’t sending inspectors out.
Back in New York City, inspections are also a concern for Leslie Hirsch, an agent with Compass, since New York Gov. Andrew Cuomo banned all non-essential business starting Sunday, including appraisers and inspectors from going on site visits.
“My buyers were also planning on having a home inspection done before signing, but now we have to write an inspection contingency clause into the contract,” Ms. Hirsch said, adding that another clause also “says if the buyers contract Covid-19 within 24 days of signing, they can back out.”
Date : 3/25/2020