Let’s talk about a real estate bill in the 2011 Minnesota legislative session. Under MN Statute section 515B.4-108, purchasers of a condo, townhouse or cooperative unit get 10 days to review the home owner association (HOA) disclosure documents. That 10-day clock starts upon document delivery to the buyer. During the review period, the buyer can cancel the purchase agreement for any reason.
Apparently, some purchasers have used this reasonable rule in unintended ways. They purposely avoid the document delivery, thereby delaying the 10 day period indefinitely. Why would someone who has already negotiated a purchase agreement play this game? It can’t simply be buyer’s remorse, because the contract is easily cancelled without penalty during the review period.
I can think of only two reasons why someone would do this. Buyers may enter into a purchase agreement to keep someone else from buying a unit they like. But they still want to shop around to make sure it’s the very best choice. The end result is that the seller’s property is taken off the market for an uncommitted buyer.
Second, they might intend to pit two or more properties against each other in negotiations, post-purchase agreement. For example, Buyer Bob signed a purchase agreement with Seller Sue to buy her condo. During the review period, Buyer Bob tells Seller Sam that he will buy Sam’s condo instead of Sue’s, if Sam offers better terms. At the same time, Bob may tell Sue that Sam is selling his condo cheaper and Bob will cancel the purchase agreement with Sue unless she beats Sam’s price.
This scenario was common enough for the MN Association of Realtors to lobby for change. The proposed law states that the 10 day period begins upon delivery of the disclosure documents to the purchaser or, if written authorization has been provided, the purchaser’s agent (new language is underlined.)
The only problem with this bill is the way it will be implemented. The proposed process will give the buyer a choice on the Common Interest Community (CIC) addendum to the purchase agreement. But at this point, buyers already know if they intend to play “hide and seek” to lengthen the review period. So they will not allow the 10 day clock to start upon document delivery to their agent. The problem hasn’t been solved.
Here’s my suggestion. Incorporate this choice into the standard Buyer’s Representation Agreement. Requiring an additional signature for this part of the representation contract still ensures buyers’ right to choose. But their decision is known early in the buying process. If they have not yet thought of this delaying tactic, they won’t have an issue with delivery to the agent.
If the buyers do intend to use this loophole from the beginning, they will insist that the review period starts only when they receive the disclosure documents. While this method doesn’t totally prevent the game-playing, it gives an early warning to others of “potential-shenanigans-ahead”.