Have you ever heard of force majure? Chances are if you have never read a real estate contract, you have not. It is a clause in a contract that protects the buyer/seller in the case of a natural disaster like a hurricane, earthquake, tornado, flood and, in some cases, a pandemic. But, not all contracts have had the pandemic as a part of it, and that is why everyone is now adding the “Covid Clause” to all of their existing and new contracts.
This new clause or addenda states that if something happens, that is covid-19 related, then the contract can be canceled or postponed. If either party becomes ill and has medical bills to cover if either party loses or is laid off from their jobs, this new clause protects them. It protects both the seller and the buyer and also has added benefits.
You might get nervous about this clause as a seller because the buyer can back out of the deal anytime and usually with their earnest money. However, this clause is good too. Having it in the contract gives the buyer or potential buyers peace of mind, and they will be more likely to sign a contract with you because it protects them. Also, it does state that if you have financial problems, you can terminate the contract as well.
The covid clause will include items like closing extensions, loan approval, face-to-face meeting, what to do if there is trouble, and, in the worst-case, termination of the contract.
Closing Extensions: If delays are needed because of covid related problems, there will be an extension either for a set period (usually 30 days) or a period of time agreed upon by both parties. Causes for the delays may be that the home inspector requires the residence to be vacant, leading to delays or even cancellations. Also, you may not feel safe having anyone come into your home too.
Loan approval: This another delay that may occur, which will take more time. This can be due to it being handled from home and the fact that mortgages are at an all-time low, and the buyer’s lender may be swamped with paperwork.
Meeting for closing: What to do at closing. With travel restrictions and other covid-19 related circumstances, it may be more challenging to have face-to-face closings.
Contingencies: What happens if one or both parties involved gets sick. If they get sick enough to be hospitalized, this could be a financial burden they did not anticipate before this transaction, and they might have to cancel the contract.
Contract Termination: This will allow the buyer to terminate the contract. But only if he/she has lost their job or been laid off or, as mentions above, has large hospital debt. This option can be invoked even if the loan contingency has been removed.
The contract’s termination will often include that the buyer will get back his/her earnest money unless stated otherwise in the contract.
Just like with any part of a standard real estate contract, the covid clause can be negotiated. Getting together and coming to an agreement on what to do and when to do it is very smart. This again will protect everyone and also ensure that everyone is going into this contract with what they want. Items that can be negotiated are the earnest money, how long a delay will be allowed before termination, and whatever other concerns that either the buyer or seller may have. Everything is negotiable in a real estate contract.
There is another form that many realtors are using to protect them and everyone in the parties. Everyone involved at any time of meetings, buyer and real estate agent, seller and real estate agent etc., have to sign a form stating that they are not currently sick with covid-19 nor have they come in contact with anyone that has had covid-19. This is an assurance for all parties involved. Of course, this is not foolproof as anyone could be asymptomatic at the time of signing.
These new contract additions and other paperwork are here to protect everyone involved in your transaction. This is new but will become a standard for all contracts now and in the future.