Ross Law | Ross Title facilitates executed contracts, closed transactions, and safe disbursements. Every step of the process focuses on safe and happy clients and Realtors. Important to note, the contract form (FR/BAR or NABOR), is never an obstacle. We can navigate both contracts. There is more than one road to our ultimate destination – a successful closing.
Over the next few months, our articles will explore the key aspects of both contracts. We will break the contracts down to key components, improving your ability to spot issues and ask us any questions. We routinely meet with Realtors and their customers at no charge.
Let’s begin by noting some key differences between NABOR and FR/BAR that cause most of the problems.
- NABOR is a local contract – drafted and promoted by the Naples Area Board of Realtors. Realtors and attorneys from other parts of Florida tend to resist it.FR/BAR is instead used statewide. A Realtor can use this contract anywhere in Florida, including Naples, and is taught annually at the Advanced Real Property Certification Review course taught to Attorneys.
- Time is of the Essence:
a. FR/BAR states “time is of the essence in the contract”.
b. NABOR holds that “time is of the essence as to the closing date”.If the contract does not specify that time is of the essence for a particular term (e.g., inspections), then the party has a reasonable period of time to comply. What’s reasonable depends on the particular situation.To make matters more interesting, the courts do not treat all provisions of the contract with equal importance. The provision must be “substantial” at minimum.For a deeper dive into this topic, review our prior article, “Time of the Essence, Clear as “Mud”.
- The Seller’s Disclosure Statements Differ:
a. NABOR’s disclosure contains language at the top of page 1 and similar language at the bottom of page 5 (above the Buyer’s signature lines) stating:
For example, if the Seller lists a broken air conditioner on the Seller’s Disclosure, and the Buyer signs the Disclosure before signing the contract, then the broken air conditioner is not a defect under the contract. The Buyer has very little leverage if the Seller chooses not to fix it!
I therefore routinely recommend to my Buyers not to sign the NABOR Seller’s Disclosure Statement. The Buyers do not benefit by signing, and could expose themselves to the argument that some innocuous disclosure item is related to a large inspection issue. Why take any chances?
4. Who Gets the Washer?!
FR/BAR conveys less tangible property than NABOR. For example, the washer and dryer are not listed in the FR/BAR contract. The Seller could keep the washer and dryer unless the Buyer adds them to the contract. In that situation the Buyer usually blames the Realtor who may end up buying a washer/dryer as a housewarming gift.
NABOR lists a lot more tangible property. For example, home entertainment systems are included. The listing agent should review the first 13 lines of any NABOR offer to verify that the Seller doesn’t inadvertently sell something he wants to keep. Realtors get blamed for these overcites as well (of course).
5. The Standard NABOR contract is, in essence, a Seller’s “As Is” Contract:
In NABOR, the Seller can say NO to repair requests. If the request relates to a Defective Inspection Item, the Buyer may terminate the contract within 5 days of the Seller’s refusal.
NABOR arguably has 2 “As Is” contracts.
The second “As Is” is specifically labeled “Sales Contract – As Is”. In this contract, the Buyer has the right to terminate the contract within a default period of 15 days.
Unlike NABOR, FR/BAR does not give the Seller the right to say NO to a contractually appropriate repair item. FR/BAR has 3 repair categories in paragraphs 9 and 12 of the contract, namely General Repair Items, WDO Repair, and Permits.
Practice Tip 1: In a Seller’s market, NABOR gives the Seller an edge on inspection issues. He can flat refuse and the Buyer may likely still close.
Practice Tip 2: FR/BAR’s General Repair Items does not include mold and radon. You need to add these items if they are an issue with your customer. FR/BAR does have Comprehensive Rider I. Mold Inspection that you could use. This rider gives the Buyer the night to cancel if the mold remediation and repair exceeds the specified amount.
6. Deposits and Remedies:
NABOR has a weaker default remedy than FR/BAR. Under NABOR, “all deposits made shall be Seller’s exclusive remedy”.
FR/BAR allows the Seller to pursue “all deposits paid or agreed to be paid” when the Buyer breaches the contract.
Why is the NABOR remedy weaker? The Buyer can walk away from the contract with no apparent consequences right up to putting his deposit in escrow. Even then, if the initial deposit is small (anything under $5,000), all he would lose is the small deposit.
For example, on a $1,000,000 purchase, a Buyer would be more apt to walk away if his deposit is $5,000 rather than $100,000. The Seller has much more leverage with the Buyer with a large deposit, rather than a small one.
What are the legal consequences under NABOR if the Buyer defaults before making a deposit?
Two different cases indicate that a court may rule that the default provision in the contract is invalid. According to these cases, the non-defaulting Seller may be entitled to sue and recover actual damages. J.R.L. Development, Inc., 566 So 2d 601 (Fla 2DCA 1990); Indeveo v Hobough, 571 So. 2d. 488 (Fla 2DCA 1990)
Despite the risk of an invalid default clause, I do not know of any Seller who has sued a defaulting Buyer for actual damages. Perhaps proving damages would be too difficult when the Seller still owned the property. Who knows? At this time, the risk is theoretical.
Practice Tip 3: Point this issue out to your Seller when using NABOR. Many Sellers call me asking what their “rights” are when a Buyer defaults. Few are happy with my answer when the deposit is small or non-existent. Guess who they blame? Get a significant deposit with the offer; especially in this current Seller’s market.
Practice Tip 3B: A large deposit also helps if you decide to negotiate with a defaulting Buyer. If the deposit is $100,000, you have some room to offer some of it back to the Buyer ($25,000?) in order to secure the remaining $75,000 without additional litigation.
These few differences between NABOR and FR/BAR allow a lot of room for strategic planning. We genuinely enjoy assisting Realtors and clients negotiating these contracts. Don’t be shy, call if we can help.
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As you determine what is right for you and your clients, do not hesitate to reach out to our office for legal advice and to schedule your closing – we would be honored to help. We hope that you enjoyed these articles. If you should have any questions, please don’t hesitate to contact us directly!