The July 2023 updates to the National Association of Realtors’ (“NVAR”) standard contract forms are out and will be effective July 1, 2023 – they resulted in 4 new forms and modifications to 21 existing documents. It sounds intimidating, but a majority of the changes can be attributed to just a handful of major modifications and ensuring uniformity among the contract documents with respect to these changes. Those changes are as follows:
New Forms. 4 new forms were created – 2 relate to solar panels and electric vehicle charging stations and 2 relate to termination of the brokerage agreement.
Solar. Two new forms were created to facilitate smoother conveyance in transactions involving solar panels and electric vehicle charging stations. One form, K1400 – Solar Panel Addendum to Listing Agreement, is an addendum to the Listing Agreement. The other, K1401 – Solar Panel Contingency Addendum to Sales Contract, is an Addendum to the Sales Contract. The K1400 will assist listing agents in becoming better prepared to handle transactions involving solar panel conveyance by obligating Sellers to provide any documentation they have regarding solar panels on their property to the listing agent at the time of execution of the listing agreement, including information about ownership status, financing, and transfer fees. The K1401 creates the option for a new contingency for Buyers in transactions involving solar panels. For solar panels which are subject to an existing loan, lease, or other similar financing at the time of sale, the Seller is required to provide documentation regarding the loan to the Buyer. The parties will also have the opportunity to negotiate whether the Seller will pay off the remainder of the loan at settlement or if the Buyer will assume the loan. Existing forms were modified to: (1) reference these new forms, where appropriate; (2) include solar panels and electric vehicle charging stations to sections relating to “Conveyed/Provided Fixtures and Appliances”; and (3) disclaim solar panel expertise by Brokers in sections relating to “Appropriate Professional Advice” in representation agreements.
Termination. Two new forms were created to facilitate early termination of brokerage representation agreements by Brokers. Parties may use the new form K1398 – Notice to Terminate the Brokerage Representation Agreement (“Notice”) to provide notice of the intent to terminate the agency relationship. After payment of the negotiable early termination fee, the parties would then sign the new form K1399 – Release of Brokerage Representation Agreement (“Release”) to terminate the brokerage relationship between the parties and relieve the contractual obligations and duties owed to each other. Existing forms were modified to: (1) reference these new forms and the rights and obligations created by these new forms, where appropriate.
Legislative updates. Existing forms were updated to ensure consistency with the Virginia Code, including references to the RESAA, the Residential Property Disclosure Act, and the new Virginia Resale Disclosure Act.
Resale Disclosure Act. This Act removed the need for separate paragraphs for properties within common interest communities and all references to the disclosure packet were removed in favor of the term “resale certificate”. Additionally, the information regarding the required contents of the resale certificate and the Buyer’s right of cancellation were completely rewritten in accordance with the code.
Client termination and default. Existing brokerage forms were modified to include client termination and default paragraphs. The client’s option to terminate the agreement early was updated to require the client to deliver written notice to the Broker to terminate the agency agreement. A “Default” paragraph was added to outline what is to occur when the client is in breach of required duties. The added language provides Brokers with an option to terminate the brokerage representation agreement early by delivering Notice to terminate the brokerage representation agreement, then having the parties execute the Release to terminate the brokerage relationship using new forms K1398- Notice to Terminate the Brokerage Representation Agreement and K1399 – Release of Brokerage Representation Agreement.
Client duties. A subparagraph relating to Seller/Landlord Duties was added to the brokerage representation agreements. The subparagraphs relating to Buyer/Tenant Duties were modified slightly to more closely reflect the language used in the Seller/Landlord brokerage representation agreements. Upon breach of such Client Duties, the Broker now has the option, per the language in the Client Default paragraph to terminate the agency relationship.
Agency and brokerage relationship. Existing forms were modified to define “agency relationship” and “brokerage relationship”, in accordance with Virginia Code § 54.1-2130.
Broker Compensation. The following sections were modified:
Payment. Forms were modified to create three specific options for compensation type: (1) a percentage of gross price, (2) a flat fee, or (3) a combination of the two. Payment type options are also now available in the Cooperating Broker Payment sections.
Broker’s Service Fee. An option for a broker’s service fee was added to the Broker’s Compensation paragraph of representation agreements.
Appraisal language. Existing forms were modified to remove redundant language relating to the choice of appraisal contingency in the financing contingency addenda since this is already addressed in the main body of the contract. Additionally, the “Appraisal Contingency: No Financing Contingency” addendum was revised to include an appraisal deadline in the Appraisal Contingency Plus Gap Guaranty option that was mistakenly omitted in certain document provider platforms.
Miscellaneous:
Purpose and geographic scope. Buyer and Tenant Representation Agreements were modified to clarify that the property being sought by the Client is real property in Virginia.
Contract type. Language was added to ensure that contracts for any property type would result in compensation for the Broker.
“Term”. The definition of “term” was updated to include statutory language regarding the default time period for brokerage representation agreements (“automatically terminates 90 days after Agreement Date”). Paragraph 5 of the K1338 – Exclusive Right to Represent Buyer was also modified to add that if the settlement date for a property occurs after the expiration date of the agreement, but that contract was ratified during the term of the agreement, then the agreement will be automatically extended until settlement.
Pet fee. For lease agreements, the option to specify a non-refundable pet fee was added. In defining “rent”, the term “pet fee” was replaced by “pet rent”.
Lender letters. Existing forms were updated to clarify lender letters as “pre-qualification or pre-approval” letters.
New option for cable and internet providers. New option allowing for the Seller’s current cable and internet provider(s) to be specified in the Optional Listing Information Sheet.
Initials and signature lines. Blanks for initials were removed to ensure consistency across standard forms and additional blanks were added for the parties’ signature lines.
A full list of our upcoming classes on these contract changes and other topics can be found on our website (https://www.vestasettlements.com/) under the “Classes and Events” tab, or our Eventbrite page (https://www.eventbrite.com/o/vesta-settlements-9406500791). You can also find a summary of the contract changes on NVAR’s website (https://www.nvar.com/realtors/laws-ethics/forms-revisions/form-changes/form-changes/2023/06/06/july-1-2023-standard-forms-updates).