So . . .which contract controls?

Throughout Virginia form contracts are provided by Realtor Associations to the membership they serve to create efficiencies through the use of legally enforceable contracts for the purchase and sale of residential real estate. These form contracts provide a familiarity and comfort level for real estate agents, who in Virginia enjoy an exception to the unauthorized practice of law rules for contract work they engage in for clients they represent.

However, on certain deals, this familiarity and comfort can be disturbed by the introduction of additional legal documents. For example, deals involving bank real estate owned property (“REO”) or relocation deals (“RELO”) will almost certainly come with contract documents that are not part of a real estate agent’s standard repertoire. An example will shine a spotlight on the potential pitfalls.

Buyer’s agent Betty and Buyer Brian submit an offer on a relocation property using NVAR’s standard form contract. As part of the offer, they select the home inspection with void only option. It is Buyer Brian’s intention and understanding that he will either take the property as is or exercise his unilateral right to void. After submitting the offer, they receive a counter from the Listing Agent which contains an addendum to the purchase agreement. The following language appears in the addendum:

“In the event any provision of this Addendum conflicts in whole or in part with the terms contained in the main body of the Agreement, the provisions of this Addendum shall control and the conflicting terms in the Agreement are hereby considered deleted and expressly waived by both Buyer and Seller.”

Language such as this should immediately raise a red flag and prompt extreme attention to the provisions contained therein. The addendum further states with respect to inspections:

“If Buyer or Buyer’s agent discovers any substantial/material defect in the condition of the Property and its contents, Buyer shall promptly notify Seller in writing and identify such defect in reasonable detail on or before the expiration of the inspection period. Seller shall have 20 days from receipt of such notice (i) to correct such defect; or (ii) to cancel the Agreement by written notice of cancellation to the Buyer.”

The language in the RELO addendum regarding inspections supersedes the home inspection contingency language in the NVAR standard contract. The home inspection provision Buyer Brian thought he was getting has been substantially changed by the RELO addendum. Buyer Brian no longer has the right to unilaterally void after his inspection. Rather, he must provide the RELO seller a notice, which notice should only identify a substantial/material defect. If the RELO seller agrees to repair such defect, Buyer Brian must move forward with the contract.

Be cautious upon receiving contract addenda from sophisticated parties like banks and relocation companies. When in doubt, it is best practice to inform your client that they may seek legal counsel if they desire.