Changes to the Residential Purchase Contract
A new version of the Residential Real Estate Purchase Contract (Rev. 9/18) was released by Columbus REALTORS® and the Columbus Bar Association on October 1, 2018. The new release features contract changes that are the culmination of two years of work by your Standard Forms Committee and the Columbus Bar Association’s Real Property Committee. A copy of the new contract form with explanatory annotations is available on the Forms page (members only - requires password). The annotated contract provides explanations and useful information for all of the most important contract provisions.
Appraisal Contingency (Paragraph 3.2(d))
Previous paragraph 3.2(d) gave buyers financing their purchase three days to terminate the contract following receipt of a lender’s appraisal for less than the contract purchase price. The termination did not take effect for three days thereafter, giving the parties an opportunity to renegotiate the contract if they wished to do so. New paragraph 3.2(d) changes to a single 5day period for buyers to terminate following receipt of a low appraisal. Buyers are encouraged to share the results of the appraisal with sellers and explore the possibility of renegotiating before sending sellers a notice of termination.
Property Tax Prorations (Paragraph 4.1 (e))
In the past, property tax prorations were based on tax rates that, if not already determined for the year of closing, were based on “the most recent available tax rate and valuation, giving effect to applicable exemptions, recently voted millage, change in valuation, etc., whether or not certified.” This created confusion in the marketplace, particularly during triennial tax revaluation years, with different title agents adopting uncertified tax rates and valuations at different times of the year. New paragraph 4.1(e) bases prorations on “available tax rates, assessments and valuations as reflected in the current tax duplicate certified by the County Treasurer.”
Receipt of Offer (last page of contract, also on Counteroffer form)
Both the Residential Real Estate Purchase Contract and Counteroffer forms now feature a box at the end of the forms where the party receiving the offer or counteroffer should acknowledge receipt of the document. The acknowledgment is not part of the contract, and failure to acknowledge receipt does not affect the contractual or legal rights of the parties. However, receiving parties are encouraged to acknowledge receipt, as doing so provides the
sender with proof that the document was received, and provides evidence of the date and time of receipt.
Foreign Investments in Real Property Tax Act (FIRPTA, New Paragraph 13.7)
This is a complete rewrite of the paragraph formerly titled “Non-Foreign Seller.” Under previous paragraph 13.7, sellers affirmatively represented that they were not a “Foreign Person” as the term is defined in Section 1445 of the Internal Revenue Code. This is a difficult determination unless a seller is a U.S. citizen or a non-citizen permanent resident in possession of a “Green Card.” New paragraph 13.7 eliminates this affirmative representation, and only obligates the parties to “execute and deliver any document reasonably necessary to comply with FIRPTA requirements.”
The Central Ohio market has seen a substantial increase in the number of properties purchased by persons and business entities that are or may be Foreign Persons as defined under FIRPTA. Upon sale, such persons or entities are often subject to FIRPTA withholding requirements unless sellers take action well in advance of closing. FIRPTA generally requires that buyers withhold 15% of the entire purchase price if the seller is a Foreign person, subject to certain exceptions. For example, if the seller is a Foreign Person and the purchase price is $350,000.00, the buyer will be obligated to collect $52,500.00 from the seller at closing and deliver that money with the appropriate completed tax form to the Internal Revenue Service no later than 20 days following closing. There is, of course, an obvious danger that without advance preparation, a transaction will fail to close because the Foreign Person seller in such circumstances will not have funds available at closing to satisfy FIRPTA withholding requirements.
Listing agents are strongly advised to determine at the time of listing whether their seller is neither a U.S. citizen nor a non-citizen permanent resident in possession of a “Green Card.” Agents should strongly advise such persons to contact a Certified Professional Accountant or tax attorney to determine if they are a Foreign Person, and if so, to explore the possibility of obtaining documentation from the IRS that may reduce or eliminate the amount that must be tendered to the buyer at closing to satisfy FIRPTA withholding requirements.