Significant Changes Coming to Local/Regional Real Estate

Significant Changes Coming to Local/Regional Real Estate

  • 06/18/24

Question: I’ve been hearing about a lot of changes to real estate laws lately, can you explain what’s changing?

 

Answer: We have entered the transition period of significant changes to the operations of residential real estate across the entire country – led by the massive class action lawsuits and heavy hand (and opinions) of the Department of Justice over buyer agency commission. I wrote about these changes in this March article and will dedicate at least one or two more columns to them in the near future.

 

The commission-related changes will capture the most attention from consumers, agents, brokers, attorneys, etc but there are other unrelated changes being introduced this year that would normally be worthy of their own headlines, but are overshadowed by the commission storylines, so this week I’ll highlight three consequential upcoming changes that are important to recognize.

 

Negotiable HOA/Condo Three-Day Review Period

For years, Virginia law gave buyers purchasing a home in an Association three days to review the Association’s resale package/certificate (by-laws, budget, reserves, violations, etc) from the time it was delivered or three days from the purchase contract being ratified, if delivered on or before ratification. A buyer can void the contract at any time within this three-day review period, by delivering unilateral Notice to Void (yes, it can be used as a “get out of jail free card”). Other states have similar laws – DC is three business days and Maryland is seven days for condos and five for HOAs.

Last year, the governing code for the condo and POA/HOA resale disclosures, previously two separate codes, was combined into one code (linked here). When this happened, the requirement for a three-day review period was MISTAKENLY (at least, that’s what I’ve been told by attorneys in the know) deleted which led to a lot of confusion in the real estate community over whether the three-day Association review period could now be removed by the buyer and seller because it was no longer protected by Virginia law.

In response, the Northern VA Association of Realtors (NVAR) and most brokerages issued guidance saying that the review period should not be removed because it was untested legally and Virginia did not actually intend to delete that language.

That guidance is now officially changing as of July 1 when new NVAR sales contract forms are released (the standard forms nearly every transaction in Northern VA relies on, except for builder-specific contracts) which add brand-new language that allows for buyer and seller to negotiate the length of the Association document review period, even down to zero days (it defaults to three if nothing is filled out).

It’s important to note that while the buyer and seller can remove the review period/right to void tied to the Association resale package, it does not change the seller’s responsibility to address Association violations documented by the Association during the resale inspection, unless buyer and seller use a specific as-is clause for that purpose.

 

My two cents: Reviewing Association documents/resale certificates is important for buyers and their agent prior to purchasing a home in an Association. It’s uncommon for there to be deal-breaking issues, but buyers deserve time for due diligence, and I think Virginia law protecting that is a positive and should be written back into law ASAP.

I would be happy to make the same argument for a law that gives buyers a protected period for a home inspection because I think that it’s in the best interest of the consumer and industry overall and the last 4-5+ years of hyper-competitive real estate have led to many buyers being forced to decide between important protection(s) and buying a home at all.

 

End of Clear Cooperation Policy

In 2019, there was a major policy shift across the country and locally to reaffirm the concept of Clear Cooperation across brokers/agents participating in the MLS (database of record for real estate listings), that I wrote about here, which is now being undone.

A primary purpose of MLS’s is to provide consumers, agents, brokers, and related industry (e.g. Zillow and other consumer products) a reliable, common source of records for (nearly) all homes for sale/sold. In the years preceding the 2019 Clear Cooperation policy changes, we saw a massive push by agents, brokers, and third-party sites to create their own repository of off/pre-market listings to gain a competitive advantage – the consumers want/need to be where the listings are. Good for free-market proponents and a small percentage of consumers, but largely problematic (many reasons, including Fair Housing) for most consumers.

So MLS’s and Realtor Associations jumped in with policy (explained in the link above) that limited/eliminated public marketing of properties by agents/brokers if they were not entered into the MLS within one business day. Agents/brokers were still allowed to market properties off-MLS with enough limitations that it wouldn’t create competing platforms for listings with the MLS. The policy has been remarkably effective over the past five years and I believe facilitated significant benefit to consumers on both sides of the transaction – buyers could reliably see nearly all homes for sale from a single trusted source and sellers could reliably get the most for their homes through maximum exposure to buyers.

Unfortunately, these Clear Cooperation rules are coming to an end (I think officially in mid-August) and we will likely see a return to the fragmentation of listing sources. It’s my understanding that the removal of the Clear Cooperation policies by Bright MLS (our regional MLS) and the Realtor Associations is out of fear for new class action lawsuits.

 

My two cents: A fragmentation of listing sources will lead to a more frustrating experience for most buyers and likely lead to many sellers not receiving full market value for their homes after being misled that off-market sales are to their advantage. There are certainly use-cases where off/pre-market sales work to a seller’s advantage, but I’ve seen too many examples of off-market sales being encouraged as a benefit to the agent/broker, at the seller’s expense (the data for on-market sales is strong)

 

No Limitation on Length of Coming Soon Listings

You’ve probably seen or heard of homes listed for sale in “Coming Soon” status. That means that they’ve been entered into the MLS with a price and the ability to include all of the marketing/info you’d see in a home fully for sale (though they often do not have photos/complete marketing yet), but cannot be shown to prospective buyers until they are changed to For Sale status (pre-market, sight-unseen offers are allowed).

The “no showings” rule is strictly enforced and generally followed by agents, so it’s a good system for early marketing/notice of a home for sale that isn’t ready for showings. Days on Market, an important measure for buyer/seller negotiation leverage, do not start accruing in Coming Soon status.

Currently, a home can be placed in Coming Soon status for up to 21 days, after which it must be converted to For Sale status or removed from the market. Soon (I believe mid-August) Bright MLS (our regional MLS) will uncap the limit on the number of days a property can be listed in Coming Soon status.

As I understand it, a property could be listed in Coming Soon forever under the new rule. The listing agent will have to enter a date for when the property is expected on market, but that date can be changed and I’m not sure there’s anything preventing a date many years into the future.

 

My two cents: My first reaction is to applaud this change. I think that the more homes we have showing up in the MLS that a homeowner is planning to sell or willing to consider selling (e.g. a “make me move” price), the better it is for the marketplace. I’m curious to see how this one plays out and think there will be some excellent use cases of it benefitting sellers and buyers.

 

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

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