Washington state residential purchase and sale agreement form 21

NWMLS FORM 21: ALTERATIONS AND PUSHBACKS TO CONSIDER IN A BUYER’S MARKET

May 14, 2020

As discussed in a previous post entitled “NWMLS Washington Residential Real Estate Forms: Any Alternatives?” (April 29, 2020) and “NWMLS Form Documents: Some Alternatives to Consider in a Seller’s Market” (May 4, 2020), the overwhelming majority of residential real estate transactions in Washington is documented on forms published by the Northwest Multiple Listing Service (“NWMLS”). Those documents have been crafted to strike a fair balance between the parties. While a fair and balanced approach is entirely appropriate when prevailing market conditions do not heavily favor the buyer or the seller, there are times when the NWMLS documents, without substantial amendment, do not well serve a party holding most or all of the bargaining cards in a transaction.

When a residential real estate market heavily favors purchasers, a buyer should strategically push for more favorable terms than those found in the boilerplate of the NWMLS Form 21 purchase and sale agreement. If there are choices presented in the document, choices that can bend a term in favor of one party or the other, buyers in markets tilted their way should resist any self-serving seller elections.

Terms in NWMLS Form 21 that a buyer might want to target for beneficial amendment or the selection of advantageous options — considerations that extend beyond the obvious such as price, contingency and earnest money — may include:

Changes to boilerplate provisions.

• Section b. of Form 21 General Terms provides that a buyer must deliver the agreed earnest money within two days after the agreement has been signed and delivered by both parties. In a buyer’s market, a buyer may want to insert a longer time period to deliver earnest money, especially if temporary logistical challenges to delivery are presented.
• Section h. of Form 21 General Terms provides generally that the buyer and seller must split the closing escrow agent’s fee. In a buyer’s market, the buyer may succeed in pushing the obligation to pay the entire escrow fee to the seller.
• Section w. of Form 21 General Terms provides, in its boilerplate, that a buyer has 10 days after mutual acceptance of the purchase and sale agreement to review information about the property provided by the seller and listing broker. Two buyer concerns come to mind here:
  • A buyer may want more than 10 days to review information provided by the seller’s side. In those situations, the buyer should negotiate for more time than the ten days pre-printed in the document.
  • More problematic in Section w. is the pegging of the 10-day deadline to the date that the purchase and sale agreement is mutually accepted. What if the seller side provides information about the property after that 10-day deadline? A buyer may want to peg the review time to, say, 10 days after the mutual acceptance of the purchase and sale agreement or after the seller or listing broker provides information about the property to the buyer, whichever is later.

Pushback against seller proposed elections.

• Default. Section 8. of Form 21 Specific Terms and Section o. of Form 21 General Terms.

Section 8. and Section o. lay out the seller’s remedies in the event of a buyer’s default (typically occasioned by a buyer’s inability or refusal to close the transaction after all applicable contingencies have lapsed or been waived). The two provisions, combined, lay out two options for enforcing the purchase and sale agreement if the buyer breaches:

1. Limiting the seller’s remedy to keeping the buyer’s earnest money as full liquidated damages; or
2. Giving the seller a choice of four remedies:

a.) Keeping the earnest money as full liquidated damages;
b.) bringing a lawsuit against the buyer for the seller’s actual damages;
c) bringing a lawsuit against the buyer to force the buyer to complete the transaction (specific performance); or
d.) pursuing any other rights or remedies the seller may have against the buyer.

A prudent seller, in any market, will attempt to preserve all available remedies, electing the second checked box in Section 8. An equally prudent buyer should attempt to limit the seller’s remedy to mere forfeiture of the earnest money, selecting the first checked box in Section 8. A buyer successfully negotiating the earnest money forfeiture as the only seller’s remedy option will avoid all risk of litigation and the prospect of having to pay the seller’s damages (including attorneys’ fees) if the deal goes sour and the buyer has no defense or excuse. In a strong buyer’s market, the buyer should win that tug of war.

• Payment of charges/assessments levied before but due after closing). Section 13. of Form 21 Specific Terms and Section h. of Form 21 General Terms.

This is a potential landmine for sellers and a potential annuity, a gift that keeps on giving, for buyers. This consideration is only relevant when a property is subject to an assessment, other than real estate taxes, that attaches to the property’s title (typically giving the assessing party lien rights) prior to closing of the sale transaction, but is in some part not payable until after the property sale closes. Special improvement district assessments (e.g. for sewers, utilities, sidewalks, road improvements) and irrigation district assessments are common examples. Depending upon the size of the assessment, placing the burden of payment on the buyer or seller may not be a material purchase and sale term – especially if the duty to pay the assessment has a relatively short one or two year payout or is on just a one payment and done basis. Many of these assessments, however, have huge up-front levies that are payable on an annual basis for years, possibly a decade or two, to come. In situations where lingering, substantial annual assessment charges hang over a property, the seller’s agreement to check the box in Section 13. for “prepaid in full by Seller at Closing” rather than the “assumed by Buyer” would be a huge win for the buyer.

Standing ground to avoid changes to buyer friendly provisions.

• Condition of Title. Section d. of Form 21 General Terms requires that the seller convey a) MARKETABLE TITLE to the buyer b) by means of a STATUTORY WARRANTY DEED. A buyer wielding the bargaining power afforded by a strong buyer’s market should not agree to anything less.
  • Marketable title. Section d. provides that the seller must convey marketable title to the buyer at closing. Sellers sometimes try to reduce the condition of title standard from one of marketable title to insurable title. As discussed in a previous post, marketable title is title that is not encumbered by conditions or claims of others that would materially affect the value of the property or interfere with the buyer’s reasonable use of the property. Insurable title lowers the standard by allowing title to pass subject to existing conditions or claims of others that might materially affect the property’s value or interfere with the buyer’s reasonable use if a title company would insure, possibly in the form of an indemnity, to protect the buyer against risks if these defects ever become a tangible problem. Especially in a buyer’s market, the buyer should not cave to a seller’s request to reduce the condition of title standard to mere insurable title. A seller pushing that term likely has a title defect that cannot be excused under the marketable title standard. A buyer with strong bargaining leverage should not agree to assume the burden of this problem without a corresponding reduction in purchase price.
  • Statutory Warranty Deed. Section d. also provides that title must be conveyed by the seller’s statutory warranty deed. A seller’s warranties under a statutory warranty deed are not limited to title exceptions that occurred only during the seller’s tenure as owner of the property. To reduce their warranty exposure, sellers sometimes try to dilute the Form 21 requirement of conveyance by statutory warranty deed to a special warranty or, as it is called in Washington, a statutory bargain and sale deed.

A title company will not always insure a conveyance of land title that limits warranties to the seller’s time of ownership as in the case of a special warranty or, in Washington, a statutory bargain and sale deed. Lenders, too, often will not fund a purchase money mortgage financing transaction calling for a conveyance by means other than a statutory warranty deed. Even in a seller’s market, therefore, most institutional players involved in the transaction will support a buyer’s refusal to accept anything but a statutory warranty deed, holding instead to the original boilerplate requirements of Section d. The legal effect of Washington’s statutory warranty deed is laid out in RCW 64.04.030. Bargain and sale deeds are treated in RCW 64.04.040. A third type of deed in Washington, the quit claim deed, which is devoid of any seller warranties, is established in RCW 64.04.050.

A much more detailed review of the deed forms recognized in the Washington statutes will appear in a future post.

• Title Insurance. Section e. of Form 21 General Terms provides that the seller must pay for an “ALTA form of Homeowner’s Policy of Title Insurance for One-to-Four Family Residence”. This form of policy is VASTLY superior in coverage to an ALTA form of Standard Owner’s Policy of Title Insurance. The Homeowner’s Policy carries a higher premium (usually about ten percent (10%) higher). This increased cost often leads sellers to conveniently check the “Standard Owner’s Coverage” box in Section 2 of NWMLS Form 22D, entitled “Optional Clauses Addendum to Purchase & Sale Agreement”, a form used in a large majority of transactions to clarify or amend some terms of the Form 21 purchase and sale agreement and, at least in the case of Form 22D Section 2, to kill buyer friendly Form 21 terms. In a buyer’s market, the buyer should resist any attempt by the seller to dilute title insurance coverage from the Homeowner’s Policy form to the Standard Owner’s Policy form. In a seller’s market, the buyer should still insist on issuance of a Homeowner’s Policy, but be prepared to pay the difference in premium cost. The additional coverage afforded the buyer is well worth the additional premium. A later post will compare and contrast the coverages offered by the two policy types.

NWMLS Form 22D, the “Optional Clauses Addendum to Purchase & Sale Agreement” mentioned above, deserves a bit more focus. That document is a useful tool for a buyer or a seller in modifying the terms of Form 21. Its boilerplate elections, depending upon the section, can help or hinder a buyer or a seller. In addition to boilerplate, Section 12 provides the parties a blank sheet to amend Form 21 in any way they see fit, customizing virtually any term in a way limited only by their imaginations and, of course, mutual agreement.

Section 11 of Form 22D relates to home warranties, providing a purchaser in a strong buyer’s market an excellent opportunity to find additional value in the transaction by opening the door for the buyer to bargain for the purchase of a one-year home warranty at the seller’s partial or sole expense. These warranties can take a lot of the uncertainty about the condition of a pre-owned home, its systems and appliances by covering much of the repair and replacement costs that might hit during the year after the sale closes. This peace of mind is attainable by checking the Section 11 box and filling in the appropriate blanks (i.e. name of home warranty provider; amount seller has to pay toward the warranty; and options to be included in the warranty).

In a market favorable to buyers, a buyer should not be shy about claiming more ground than NWML forms afford. The examples above are not exhaustive. Perhaps the most important thing for buyers and their brokers to consider is that core terms such as the availability of contingencies (and the ability to tailor them), earnest money amount and form, closing date and, perhaps most importantly, price are all subject to negotiation in a buyer’s market. These are the big picture items and always deserve the most emphasis. But when a market gives one of the parties more leverage, the small stuff and details matter, too.

What is a Nwmls Form 21?

What is a re 21?

How do I sell my house by owner in Washington state?

Can a seller back out of a purchase agreement in Washington state?