Buyers’ Brokers - Don’t Get Caught Having to Write Earnest Money Checks (Coming Summer/Early Fall 2023) Ashley Strauss-Martin New Mexico Association of REALTORS® General Counsel
A new provision will be added to NMAR Form 2104 – the Residential Re-Sale Purchase Agreement (“Agreement” or “Form 2104”) in the late summer/early fall that will provide a stiff penalty should the buyer or the buyer’s broker send an inspection report to the seller when the seller has not specifically requested the report. We begin the multi-step notification process now, in hopes that buyers’ brokers are prepared and won’t find themselves having to write earnest money checks to their buyers. Many years ago, Form 2104 provided that the buyer would send the inspection reports over if the buyer terminated the Agreement due to inspections or objected to inspections. As a result, inspection reports were being passed around quite liberally, not just from buyers to sellers, but from sellers to new buyers (when the deal with the original buyer fell apart and the seller was left with the original buyer’s inspection report). Inspectors took issue with this, some going as far as to threaten lawsuits based on copyright infringement against buyers, sellers, brokers and even an MLS. Simultaneous with this was a shift in the way some sellers viewed inspections of their property. Yes, the seller would allow the buyers to conduct inspections, but some sellers did not feel that together with that came the buyer’s “right” to tell the seller everything the buyer (or their inspector) believed to be “wrong” with the seller’s home. As a result of all of this, several years ago, NMAR changed its approach to inspection reports – reports would never be provided upon a buyer’s termination
unless requested in writing by the seller and only the relevant sections of the report would be provided if the buyer was objecting, again unless the seller requested the entire report in writing. Despite this having been added several years ago, buyers’ brokers (not buyers) continue to send inspection reports to sellers even when the sellers have not request them. One could hypothesize that this is being done for one of two reasons: either because these buyers’ brokers are not familiar with the Agreement or because these buyers’ brokers have chosen to ignore the Agreement to gain some perceived advantage for their buyers. Either reason is problematic. As currently written, if the buyer terminates based on inspections on or before the Objection Deadline or objects by the Objection Deadline, but the parties cannot resolve the buyer’s objections, the buyer is entitled to a full earnest money refund. However, coming this summer/early fall, Form 2104 will be amended to provide that if the buyer or the buyer’s broker sends the report to the seller without the seller requesting the report, it will constitute a WAIVER of the buyer’s inspection contingency. This means that if even if the buyer timely terminates or objects, if the buyer does not proceed to Closing due to inspections, the buyer will be in breach of contract and at a minimum, the seller will be entitled to the buyer’s earnest money. In the event it was the buyer’s broker who sent the report or directed someone else to send the 1 In this latest revision of 2104, an additional provision was added that says the buyer will NOT send the report or the section of the report if the buyer is only requesting monetary concessions (price reduction or seller concessions), again, unless the seller makes a written request for the report.