Coronavirus Clause: What Does This Mean for Homebuyers?
Jun 03, 2020 11:09 AM EDT
Unless you've been living under a rock, the coronavirus pandemic is wreaking havoc on our lives. From going to the grocery store to going to work, the virus is something no one could have foreseen and prepared for.
Like other business sectors, real estate is doing the best it can to conduct business in a way that is both safe and fair. Individuals who are midway through the home sale process and are under contract are (understandably) concerned about their legal rights should something throw a wrench in the cogs.
There is a legal doctrine called "force majeure" which gives people under contract the ability to delay contractual obligations due to events that are outside of anyone's control - like the COVID-19 crisis.
Real estate contracts typically already have some form of force majeure written in them, but the onset of this crisis has changed everything so rapidly, Realtor associations around the nation have given agents something known as the "Coronavirus clause."
Note: Force majeure does not include things like losing your job, financial reverses, or future uncertainty. However these events are likely to play a role in a lender's decision to approve or deny a loan application.
What does the coronavirus clause do?
The coronavirus clause states that a real estate contract can be delayed should there be an act of God (natural disaster), there's a state of emergency, a public health emergency, a pandemic, or government imposed quarantine.
The clause allows for some flexibility regarding a variety of things that goes into buying a home. For example, home inspections can be delayed because home inspectors aren't allowed to go into the house. Maybe there are repairs that need to be done before the contract can close. The clause can extend the time the seller has to make said repairs.
The clause also extends the time in which buyer's can obtain a loan. Right now, mortgage lenders are experiencing an influx of mortgage refinancing because the average interest rate has dropped to 3.52% for a 30-year fixed rate mortgage - the lowest it's ever been!
Keep in mind that the clause doesn't extend the timeline indefinitely. Once the buyer and seller agrees on the deadline extension, any earnest money will be returned to the buyer or if the seller can keep the money if the transaction falls through.
When should the coronavirus clause be used?
Since most real estate contracts already include some form of force majeure, you might be wondering when you should ask for the coronavirus clause to be included in your contract. Until told otherwise, you should always insist on having this clause added in.
The sad reality is that there's no way in knowing how long this virus is going to be sticking around. Therefore, it's always better to have as much protection as you can because buying or selling a house is a big deal!
Coronavirus clauses aren't just for purchase contracts
Many real estate agents are incorporating some form of a coronavirus clause earlier in the transaction. Some agents are including a COVID-19 certification with their documentation long before ever showing properties.
This certification is signed by all parties involved in a showing - this includes the listing agent, buyer's agent, sellers, and interested buyers. Those who sign the certification are basically saying that they are not infected with the virus, nor have they been exposed to it (to the best of their knowledge).
Listing agents can also include an addendum to the listing agreement that allows sellers whether they want to keep their property on the market or not and it allows new sellers the ability to list their home as "active" or "coming soon."
No matter where you are in the home sale process, it might be in your best interest to ask your agent if a coronavirus clause can be included in the contract. No one knows what the future holds and it's always better to be safe than sorry, especially when it comes to something so unpredictable like a global pandemic!