contract Archives - The Phoenix Real Estate Guy

10 Ways to Make Your Offer Stronger Without Increasing the Purchase Price

June 13, 2012 By Elizabeth Newlin

Do you watch those real estate ”˜reality’ shows on Bravo? You know the ones I’m talking about. It’s always three douchebag Realtors in some super pricey market sleazing their way into sales and making insane paychecks. I know, I’m obsessed, too. My husband automatically puts in his ear phones whenever I turn one of those shows on because he knows 6.8 seconds in I’m going to start screaming, “That’s not how it works! This is ridiculous!” But I can’t help myself. I have to watch them.

One of the things that bothers me most about these shows (besides how they always do business while shopping in ludicrously flamboyant and expensive clothing stores) is how when they get an offer from a buyer it’s a verbal offer and always just the purchase price.

Inevitably stern and older female buyer’s agent: My client says he’ll do 4 million, 350 thousand and not a penny more. Your seller would be greedy to ask for more. Please tell him I said that.

Young male douchebag listing agent: I’ll take it to him, but I’m telling you now it’s not enough. Your client is grievously undervaluing the Japanese toilets and the Dutch marble counters in the kitchen. You, ma’am, are a crook.

Maybe this is how it works in Hollywood and NYC but I sincerely doubt it. Beyond the fact that I have never in my life taken a work call while sitting in a bubble bath, and that I think it’s just silly when they insult each other as part of the negotiation, there is way more to an offer than just the purchase price. There is a reason why we review offers on paper with complete terms.

In Metro-Phoenix’s current crazy seller’s market, a buyer who’s maxed out his prequalified loan amount on an offer can use a boost to his offer any way he can get it. As we all know, it is not uncommon for sellers to get multiple offers for their single family homes. So I’ve come up with a list of 10 ways to strengthen your offer without adding a dime to the purchase price:

Sooner close of escrow date – Many sellers want the deal done as quickly as possible. This is especially true of lender and investor owned properties. If it’s owned by a normal seller living on the property, it’s worth a call to the listing agent to see if the seller has a preferred close of escrow date. Sellers have lives, too. If you schedule around their child’s 3rd birthday party, it just might give your offer an edge.
Waive appraisal – If your offer is financed but you have a significant down payment, you may be able to waive your appraisal contingency. This means that you agree to pay the purchase price on the contract regardless of what an appraiser thinks the value of the house is. It means that you will have to be putting down the amount between the appraisal and purchase price plus the minimum down payment, so it’s not an option for everyone, but in this market with appraisals coming in all over the board, it’s an attractive feature to sellers.
Increase earnest – Earnest money is simply the money you give to title to keep you honest in the transaction. Putting down a larger earnest doesn’t cost you a dime more in the bigger picture, as long as you’re willing to live with the rules of the contract and it gives the seller the impression you’re serious and stable.
Don’t ask for concessions – In our current time of ”˜cash is king’, many buyers want to ask the seller to pay their closing costs. This reduces the seller’s net by generally about 3% of the purchase price and weakens your offer. If you don’t need it, don’t ask for it.
Include an As-Is Addendum – The standard contract allows the buyer an inspection period and then the right to ask the seller to make repairs. The seller doesn’t have to agree, but then the buyer has the right to cancel. If the buyer includes an ”˜As-Is Addendum’ with his contract, he still has the right to his inspection period and can cancel for anything scary he finds, but it lets the seller know he doesn’t plan on asking for repairs, which can be very attractive to a seller.
Write a letter describing your family and why you are looking forward to living in the house – Normal sellers like to think they make their decisions based only on finances, but the truth is they’re selling a part of their lives. Many sellers really want nice people who will take good care of their house as their buyers. If you make an effort to let them know this is who you are, they may just pick you over the buyer they know nothing about. (I should note if this is a lender owned property, save your ink and paper. The bank doesn’t give a rat’s patootie who buys the house.)
Use the title company the seller requests – This is generally something that’s important to the Realtor and not the seller, but regardless, it’s one less battle that agent will have to fight and makes your offer just that much prettier and shinier.
If you happen to meet the seller, compliment them on their choice of everything in the house – Again, sellers are usually people with souls, who are vulnerable to flattery. Exploit that knowledge for everything it’s worth in a market like this. The seller holds the power; you gotta do what you gotta do to balance it out. Ex: Oh Seller, I just adore the color scheme in this room. I can’t tell you how long I’ve wanted a teal and peach wallpaper border. Can you tell me where you bought that poster of howling wolves? I really think it looks so right there, if I get this house I might have to buy one just like it. Amazon?
Have your agent use connections to your advantage – If your agent knows or has worked before with the listing agent, have her call and sweet talk the agent. If two offers are the same, it makes sense to go with the one represented by an agent you know and trust. This makes the transaction go more smoothly. It can pay off to play the favoritism card.
Pay cash – This one also isn’t an option for everyone, but if it is, use it!

CURE Period Notice: Do you know how it’s used?

May 31, 2012 By Shar Rundio

cure-greatest-hits — Another type of Cure

I just issued a CURE Period Notice. “A what?” you say. That’s what I thought. Unless you’ve been on either side of a CURE Period Notice it’s not something you probably know much about. I get the amazing opportunity to chat with you today about one of the most underutilized, misunderstood {uber exciting} bits of our AZ Residential Real Estate Purchase Contract: The CURE Period Notice.

(Editors Note: If you want to talk to Shar more she loves to connect on Facebook
And don’t forget to follow the Phoenix Real Estate Guy page there too.)

It all started back in the day” you know” way back when we had a crazy Seller’s market and properties were increasing by $20,000 each month (sound familiar to anyone? No, me neither.) Buyers found themselves in a sticky situation should they wind up in breach of contract. For example, if their loan ran into a snafu and they were one day past the close of escrow date the Seller could elect to cancel the contract, retain the Buyer’s earnest deposit AND resell the house to another Buyer waiting in the wings often with a higher offer price. Sounds a little bit harsh, right?

Enter, THE CURE NOTICE, incorporated into the purchase contract in 2005:

CURE Period: A party shall have an opportunity to cure a potential breach of this Contract. If a party fails to comply with any provision of this Contract, the other party shall deliver a notice to the non-complying party specifying the non-compliance. If the non-compliance is not cured within three (3) days after the delivery of such notice (“Cure Period”), the failure to comply shall become a breach of Contract. (lines 272-275 of the purchase contract)

What this means to you as a Buyer or Seller is there is no “automatic” breach of contract. The non-breaching party must issue a CURE PERIOD NOTICE to the breaching party detailing the non-compliance and giving them 3 full calendar days AFTER delivery of said notice to cure the breach.

Here’s a sampling of reasons that a CURE Notice might be issued:

Earnest money hasn’t been delivered to the title company
Seller’s Property Disclosure Statement (SPDS) or CLUE Report not given within 5 days
Lead Based Paint Disclosure not delivered within 5 days
Loan documents not delivered to title 3 days prior to closing
Buyers funds not being delivered to title
Seller not making the premises available for inspections or the final walkthrough
Seller not having the utilities on for inspections
Seller not signing their title documents prior to the close of escrow date

So…how does this play out? Let’s take the same scenario above where the Buyer has failed to close on time. If the Seller intends to cancel the contract (or merely scare the beejeebies out of the Buyer) the Seller must deliver a CURE Period Notice after the failure to close and then allow 3 days for the Buyer to “cure” their breach. After the 3 days has passed, and if the Buyer still has not fulfilled their contractual obligations, the Seller may elect to cancel the contract. Are you counting days with me here? That’s effectively 5 days after the initial breach before the Seller can cancel.

There you have the CURE Period Notice. Something that you’ll hopefully not have to deal with but to make sure your favorite REALTOR is familiar with should you find that someone in your contract is in breach.

Friend or Foe? Depends on which side of the breach you’re on, I guess. I’d love to hear your thoughts.

I’m a home seller, can I cancel the contract on my home?

March 13, 2012 By Jay Thompson

It doesn’t happen very often, but occasionally a home seller will decide that they don’t really want to sell their home after all.

What can they do?

If your home is only listed for sale and there isn’t a pending offer, then you can cancel your listing agreement. Maybe. It depends on the brokerage you have listed your home with and how your listing agreement is written.

Thompson’s Realty will let a home seller cancel their listing agreement with no strings attached. We realize that sometimes situations change. Be advised, not all brokerages will let you cancel a listing agreement. You should be able to at least take your home off the market. Check your listing agreement. Some brokerages may charge you for expenses they have incurred to market your home. Your options should be spelled out in your listing agreement. Read it carefully…

What if my home is under contract for purchase?

Well, you’ve got a problem. The purchase contract you signed is a legally binding agreement to sell your property under the terms of the contract. Breaking such a contract is generally considered a breach of contract:

Breach of contract n. failing to perform any term of a contract, written or oral, without a legitimate legal excuse … Breach of contract is one of the most common causes of law suits for damages and/or court-ordered “specific performance” of the contract.

Ugh. Law suits for damages. Court orders. Sounds expensive, and it is.

What is the home buyers recourse if you breach your contract and decide not to sell your home?

Typically the home buyer will seek court-ordered relief in the form of “specific performance”. In short, they take you to court and ask the judge to force you to uphold your end of the deal. And the vast majority of the time, they will get exactly that. Should you fail to sell the home after the judge tells you to, well now you are looking at contempt of court charges and all the fun and expense that entails. In this case, you might not need your home anyway as you may well have a new place to stay in The Big House.

What exactly is “Specific Performance”?

From the law.com dictionary:

Specific performance n. the right of a party to a contract to demand that the defendant (the party who it is claimed breached the contract) be ordered in the judgment to perform the contract. Specific performance may be ordered instead of (or in addition to) a judgment for money if the contract can still be performed and money cannot sufficiently reward the plaintiff.

Here is a great article, written by an attorney, with more information on specific performance.

The vast majority of the time, a seller being sued for specific performance is going to lose. After all, you entered into a contractual agreement to sell your home. The buyer has more than likely paid out of their own pocket for inspections, an appraisal, and possibly some mortgage fees. In addition, they may have sold their own home, or arranged to terminate their lease. Not to mention that they stopped looking for a home because you promised to sell them yours. Your real estate agent or the buyer’s agent might even be able to come after you for commissions due since they procured a willing, able and ready buyer for your home.

Occasionally a seller might win a specific cause complaint, but typically that only happens if the seller can’t sell the home. Not because they don’t want to, but because they can’t — as in they no longer can convey clear title.

Any other options?

You could always try asking the buyer if they would agree to a mutual cancellation of the purchase contract. It’s pretty unlikely that will fly because, as previously mentioned, the buyer already has significant monetary “skin in the game”. Maybe if you agree to reimburse them for their costs, and maybe if they are getting cold feet and/or are the nicest people on the planet then they might agree to a mutual cancellation. In the current Phoenix real estate market where many buyers have submitted offers on multiple homes, only to have their hopes and dreams dashed by being outbid, I think that it is pretty unlikely that a home buyer under contract is going to say, “No problem. I’ll just go back to the stress and pressure of finding another home”.

If you do manage to get a buyer to agree to a mutual cancellation, I would strongly suggest having an attorney draft the cancellation agreement so that you are ensured the buyer can’t come back later and sue for specific performance anyway.

In short…

If you are a seller looking for a way out of selling your home, you need to speak to an attorney. Breach of contract can have serious legal and financial implications. Don’t screw around with it. Your agent probably isn’t an attorney. Seek your agent’s advice (which should be, “speak to an attorney…”). If your agent says, “Eh, no big deal, happens all the time!” then… well, good luck. You’re going to need it (and a healthy checking account balance as well).

Disclosure: I am not an attorney, in any way shape form or fashion. And an attorney is exactly who you need to be speaking to if you’re considering breaching your home sale purchase agreement. The above is based on my professional experience. Laws and real estate purchase contracts vary by state and possibly city. Get off the Internet now and find an attorney if you are considering breaching a contract.

Photo Credit: By controlarms on Flickr. CC Licensed.

Can you guarantee that my earnest money will be returned?

May 6, 2011 By Jay Thompson

Recently a client of one of our agents wanted me, as our agency’s Designated Broker, to compose a “Letter of Assurance” guaranteeing their earnest money would be returned to them if they employed a certain tactic. (See Earnest Money ”“ What, why, how much? for an explanation of what earnest money is.)

The short answer is no, I can not make any assurances of what may happen to your earnest money.

“Say what?” the client is probably thinking. They hand over a check, sometimes for a significant amount of money, and I as one of the brokers in the transaction can’t guarantee what will happen to their funds? That doesn’t sound right”¦

Here’s the deal. Earnest money, and how it is distributed in the event of a contract dispute between the parties involved, is handled by the escrow company. This is all spelled out in Section 3f of the standard Arizona Residential Resale Real Estate Purchase Contract:

Release of Earnest Money: In the event of a dispute between Buyer and Seller regarding any Earnest Money deposited with Escrow Company, Buyer and Seller authorize Escrow Company to release Earnest Money pursuant to the terms and conditions of this Contract in its sole and absolute discretion. Buyer and Seller agree to hold harmless and indemnify Escrow Company against any claim, action or lawsuit of any kind, and from any loss, judgment, or expense, including costs and attorney fees, arising from or relating in any way to release of Earnest Money.

Or, in plain English non-legalese speak, the escrow company decides who gets the earnest money and if you don’t like their decision there isn’t much you can do about it.

So back to our original question; can I guarantee how the escrow company will distribute your earnest money in the event of a dispute? Absolutely not. It’s up to them to decide, and you agreed to that when you signed the contract. Will I go to bat for you in the event of a dispute? You bet I will. But ultimately the decision rests with the escrow company.

Does this seem silly? On the surface, probably. Consider the alternative though”¦ An escrow company is a neutral third party in the transaction. As such, they are in the best position to make decisions that affect how earnest money is distributed between parties to the contract. The only other alternative would be to have brokers on both sides decide, and clearly that wouldn’t work as the buyer’s broker would side with the buyer and the seller’s broker would side with the seller. Every time. Nothing would get decided and it would wind up going in front of a judge or jury ”“ another neutral third party, and not an inexpensive option.

That’s why this decision is left in the hands of the escrow company. We can tell you based on experience what the escrow company is likely to decide, but we can’t make promises about things we have zero control over. Contrary to popular belief, escrow officers are people too, and as human beings they are not infallible. In the trickier cases, it’s not one person at the escrow company that makes the decision. A bevy of attorneys can be involved, and yes they are people too. Really. The decisions escrow companies make with regard to earnest money disbursement is almost always spot on.

Just don’t ask me to guarantee that and write you a check if you disagree with their decision.

IMPORTANT NOTE: All of the above pertains to real estate as it is commonly practiced in the state of Arizona. Real estate law and practices vary by state. Your state laws and practices may be entirely different than Arizona’s. In addition, real estate contracts can be modified and changed on an individual basis. The boilerplate language shown here is just that ”“ boilerplate that could have been modified in your contract. Always consult with your agent on specifics to your contract and transaction.