Big Changes with Georgia Association of Realtors’ (GAR) Purchase and Sale Agreement – What it means for you
First to the bottom line before the Heery boys get all wonky – Earnest money amounts are going up! A major change in how the contract is written is going to push sellers to ask buyers to have “more skin in the game.” This change may also be accompanied by increasing interest in leaseback period after closing. We are not a fan of sellers living in the houses after closing, but this may also result.
Recent case law which strikes down the theory of being able to choose between earnest money as liquidated damages and any lawful remedy. Earnest Money becomes liquidated damages after Due Diligence is over (except where there are other contingencies). If a buyer fails to close, prior to August 1 a Seller could elect to refuse the Earnest Money and pursue buyer to purchase the house as agreed. Now – according to the recent body of case law (as per GAR counsel), if a liquidated damages clause is included in the contract, that is the Seller’s sole remedy.
In 2014 we wrote this blog on earnest money. We foresee that the recommendations we made here could double. Where Seller’s might have found 1% to 2% acceptable, they may now want 4% to 5%. Why? Let’s say this is your situation:
- You agree to sell your house and there is $10,000 Earnest Money.
- You “suffer” time off market.
- You pack and move.
- You acquire another place to live.
- Reals costs are about $20,000 to $30,000.
What are you going to do? Are you doing to accept the $10,000 or refuse it and pursue the buyer to fulfill the Agreement? We have rarely seen successful cases of specific performance, but they do exist.
Enter the new Agreement – Old Default Language was
Rights of Buyer or Seller: A party defaulting under this Agreement shall be liable for the default. The non-defaulting party may pursue any lawful remedy against the defaulting party.
New Default Language effective August 1
Remedies of Seller: in the event this Agreement fails to close due to the default of Buyer, Seller’s sole remedy shall be to retain the earnest money as full liquidated damages. Seller expressly waives any right to assert a claim for specific performance. The parties expressly agree that the earnest money is a reasonable pre-estimate of Seller’s actual damages, which damages the parties agree are difficult to ascertain. The parties expressly intend for the earnest money to serve as liquidated damages and not as a penalty.
Remedies of Buyer: in the event this Agreement fails to close due to the default of Seller, Buyer may either seek the specific performance of this Agreement or terminate this Agreement upon notice to Seller and holder, in which case all earnest money deposits and other payments Buyer has paid towards the purchase of the Property shall be returned to Buyer following the procedures set forth elsewhere herein.
We like what Campbell & Brannon wrote below
“What Changes for a Seller?
With this new change, seller’s sole remedy for a Buyer’s breach is to accept the Earnest Money as full liquidated damages. Prior to this change, the Seller had the right to pursue “any lawful remedy” such as suing the breaching Buyer for specific performance and/or the losses Seller incurred, which could include the difference between what they could have sold the home for to the Buyer versus another person, Seller’s legal fees, Seller’s additional moving expenses, Seller’s rent, etc. However, in most cases when a Buyer breached the contract, the Seller would accept the Earnest Money and move on, selling the home to another buyer.
Sellers will ask for more in Earnest Money as a result of this change!
What Changes for a Buyer?
Buyer’s remedy for Seller’s default shall be 1) to sue for specific performance or 2) terminate the contract with the return of Earnest Money. In the past, the Buyer could seek all lawful remedies which could have included consequential damages, attorney’s fees, extra moving expenses, rent during holdover, etc.”