Dear Pat,
Our friends sold their house earlier this year to buyers who made a "contingent" offer. Now, two months later, the buyers' house still hasn't sold and our friends are stuck. Since we plan to sell this summer, how do we avoid such a pitfall? From what we've seen the negotiations can get pretty complicated, and we're…
---Still Learning
Dear Learning,
I salute your "diligent student" attitude, and I intend to reward it with a simple answer to your question by the end of class. But before you nod off, let's begin a short course in contingencies, both stated and implied, as they occur in a transaction.
Think of a contingency as an "if"--if A happens, B is decreed. For example, most purchase agreements these days are contingent upon buyer acceptance of the results of a private home inspection. When the buyer's inspection reveals problems, the buyer may offer to remove the written contingency if the seller agrees to make specified repairs. However, the implied contingency remains until the repairs are actually made, and the buyer could refuse to close unless the seller performs.
More examples: all offers other than cash are contingent upon the buyer being able to obtain financing; the house must appraise at or above the purchase price; the seller must provide marketable title. Although adequate preparation normally avoids problems in these areas, they are big Ifs that officially remain for many weeks after the purchase agreement is signed.
I've outlined just a few of the more obvious contingencies within the big bundle of promises between the buyer and seller that comprise the purchase agreement. Failure to honor ("perform") any of these promises can break the contract and sink the transaction. Thus, in the broadest sense, all offers are "contingent."
Thanks for staying awake in class so far, Still Learning. Now, to your question: the "contingent offer" you mentioned occurs when the seller agrees to price and terms offered by the buyer, but contingent upon the buyer actually selling his/her own home first. ("If I sell my home, I will complete the purchase of your home.")
The seller can continue to show his/her home, and may entertain other offers, but cannot accept any other offer until the original buyer has been given 48 hours (typically) to remove the contingency and proceed with the purchase, house sold or not. The obvious advantage to buyers is that it gives them more time to sell, and they can often remove the contingency if pushed by a competing offer. Sellers are not advantaged by the deal, however, since the task of continuing to show the home becomes much harder when other agents are informed that the home is already sold "contingent." I'd guess that it reduces showings by 80%. As a listing agent I've never advised a seller to accept this kind of contingent offer.
Still with me, Still Learning? Your friends have spent a long time on the market trying to overcome their "sold contingent" status. Here's how to avoid that pitfall: if you see a strong offer contingent upon inspection, that's great. But if it's contingent upon the buyer's house selling first, just say no.
Monday, June 6, 2005
Wednesday, May 4, 2005
Flip Off the Flippers
Dear Readers:
My apologies to those who have already read, and remember, this previous article on the repugnant practice of "flipping" properties-but I think the subject is so important it bears repeating. Unfortunately, the fleecing of elderly and unsuspecting homeowners continues unabated.
Dear Pat,
I'm worried about my elderly neighbor who is moving into a nursing home. He doesn't have any family in town and some of his close neighbors have been looking out for him these past years. Here's the problem--an agent who he called to help sell his house has offered to take it off his hands by paying him a lump sum of cash. The amount is far less than other houses have been selling for on this block. We all want to protect him. What do you advise?
---Concerned Neighbor
Dear Neighbor,
Unfortunately this scene is becoming all too familiar. Twice this past year I was called in to give second opinions to homeowners who were offered cash for their properties by would-be listing agents. In both cases the houses were worth substantially more than the cash offered. With a relatively small investment in decorating and repairs, the homeowners were able to sell their homes using the normal MLS process; each netted over $60,000 more than the cash offers would have given them!
Your neighbor is likely being offered a cash deal by a "flipper," an investor who intends to make a fast buck by selling immediately at a much higher price. The practice of "flipping" is not illegal in itself--it's simply exercising the freedom to buy low and sell high--but who wants to picture some scoundrel congratulating himself on the great deal he made at the expense of an old man's nest egg? The infamous flipping cases we've all read about in the papers involve the illegal practices of fraudulent appraisals and lending, where buyers are ruined by a mortgage far exceeding the real worth of their property--the darkest side of flipping. But let's take a closer look at the legal version, where the real gouging happens to the seller.
Who are these "flippers," and how do they differ from other investors? For one thing, the investor who is buying property for the long haul doesn't need to make a killing on the purchase price--he knows the property will appreciate over time, and he buys with the intention of paying the mortgage from rental income. A flipper is looking
for profit immediately, thus he must pay the seller less than the property is actually worth, in order to avoid the much harder task of finding a buyer willing to pay more than the house is worth. Flippers can be individuals with contacts to the elderly; they can be high-profile franchises with big billboard ads; they can be--and this dismays me the most--licensed Realtors who ignore the spirit of their own Code of Ethics.
My advice to you, good Neighbor, is to step in immediately, contact a Realtor you trust, or several. Get one or more legitimate market opinions, and show the door to any agent or individual who offers cash to "take the problem off your hands." Remember, if your neighbor's house is in poor shape, he can still sell "as-is" to the whole market through MLS. He'll get a better result than any pre-market cash offer from an investor. To preserve even more of his savings a savvy agent can help him through the process of decorating and minor repairs, and he can sell at full market price. It seems that we're going through a time when the Wall Street shark mentality has moved to Main Street, and we must take extra care to look out for each other and ourselves. Don't let the bad guys win this time.
My apologies to those who have already read, and remember, this previous article on the repugnant practice of "flipping" properties-but I think the subject is so important it bears repeating. Unfortunately, the fleecing of elderly and unsuspecting homeowners continues unabated.
Dear Pat,
I'm worried about my elderly neighbor who is moving into a nursing home. He doesn't have any family in town and some of his close neighbors have been looking out for him these past years. Here's the problem--an agent who he called to help sell his house has offered to take it off his hands by paying him a lump sum of cash. The amount is far less than other houses have been selling for on this block. We all want to protect him. What do you advise?
---Concerned Neighbor
Dear Neighbor,
Unfortunately this scene is becoming all too familiar. Twice this past year I was called in to give second opinions to homeowners who were offered cash for their properties by would-be listing agents. In both cases the houses were worth substantially more than the cash offered. With a relatively small investment in decorating and repairs, the homeowners were able to sell their homes using the normal MLS process; each netted over $60,000 more than the cash offers would have given them!
Your neighbor is likely being offered a cash deal by a "flipper," an investor who intends to make a fast buck by selling immediately at a much higher price. The practice of "flipping" is not illegal in itself--it's simply exercising the freedom to buy low and sell high--but who wants to picture some scoundrel congratulating himself on the great deal he made at the expense of an old man's nest egg? The infamous flipping cases we've all read about in the papers involve the illegal practices of fraudulent appraisals and lending, where buyers are ruined by a mortgage far exceeding the real worth of their property--the darkest side of flipping. But let's take a closer look at the legal version, where the real gouging happens to the seller.
Who are these "flippers," and how do they differ from other investors? For one thing, the investor who is buying property for the long haul doesn't need to make a killing on the purchase price--he knows the property will appreciate over time, and he buys with the intention of paying the mortgage from rental income. A flipper is looking
for profit immediately, thus he must pay the seller less than the property is actually worth, in order to avoid the much harder task of finding a buyer willing to pay more than the house is worth. Flippers can be individuals with contacts to the elderly; they can be high-profile franchises with big billboard ads; they can be--and this dismays me the most--licensed Realtors who ignore the spirit of their own Code of Ethics.
My advice to you, good Neighbor, is to step in immediately, contact a Realtor you trust, or several. Get one or more legitimate market opinions, and show the door to any agent or individual who offers cash to "take the problem off your hands." Remember, if your neighbor's house is in poor shape, he can still sell "as-is" to the whole market through MLS. He'll get a better result than any pre-market cash offer from an investor. To preserve even more of his savings a savvy agent can help him through the process of decorating and minor repairs, and he can sell at full market price. It seems that we're going through a time when the Wall Street shark mentality has moved to Main Street, and we must take extra care to look out for each other and ourselves. Don't let the bad guys win this time.
Monday, April 4, 2005
Buy First, or Sell First?
We plan to move this spring, since our family is growing. We thought we’d like to find the right house before we sell, but we don’t want to get stuck with two payments if our house doesn’t sell right away. And we definitely don’t want to be under pressure to find the right house if we’ve already sold ours. What to do?
---Beginning to Worry
Dear Worried,
Relax. I hear your question just about every time I do a market analysis for homeowners, and I can reassure them that, although every situation is unique, the best approach is usually readily apparent. Let’s begin with a look at different markets: in slower times such as the 1980’s, it often took 30 days or more to sell prime houses, so clients were understandably reluctant to buy their next home and hope for a quick sale of their own home. In those days we often counseled clients to sell first, with an extended closing date of 90 days or more, to allow them time to find and close their next home.
As we all know, times have changed. I can’t speak with any authority on the suburbs, where market times are much longer, but in South Minneapolis sellers generally can afford to take their time in selecting their next home, and then count on the fast market to sell their own home in plenty of time to coordinate closings. As a seller/buyer, you would try to negotiate an extended close on the home you’re buying, say 60-90 days, to give you time to sell. Of course, over the years I’ve had many calls from panicked seller/buyers who bought too soon, before their own house was ready for market. My dog-eared Rolodex has saved the bacon of many of them, as we frantically tracked down workpeople for last-minute repairs and renovations. I’ve seen both sides wrap up within a month, when conditions were ideal: great house, hot market, cooperative principals and Realtors, competent lender and title company. But it’s no fun—and downright impossible if you can’t get ready for market within a few days.
So here it is in a nutshell, Worried—if you want to avoid worry, have your house completely ready to sell before you start looking, even if you just want to peek at a few open houses. Best to select your listing agent, and get her (no gender bias here!) involved in your timetable before you start looking. If that perfect house shows up on the first day, and the seller gives you only 30 days to close, you won’t have time to paint your porch, let alone remodel the bathroom.
Of course there are situations where “buy first” is the wrong approach, notably when it’s obvious that your home would linger on the market—say, an unusual layout or hard-to-sell location. And there are times when it’s best to own both homes for a few months; perhaps to allow for a major project on the next home, or to repair and effectively stage the home you’re selling. Again, get a real estate pro involved early on, before you start looking, to help you make the right decisions. Good luck!
---Beginning to Worry
Dear Worried,
Relax. I hear your question just about every time I do a market analysis for homeowners, and I can reassure them that, although every situation is unique, the best approach is usually readily apparent. Let’s begin with a look at different markets: in slower times such as the 1980’s, it often took 30 days or more to sell prime houses, so clients were understandably reluctant to buy their next home and hope for a quick sale of their own home. In those days we often counseled clients to sell first, with an extended closing date of 90 days or more, to allow them time to find and close their next home.
As we all know, times have changed. I can’t speak with any authority on the suburbs, where market times are much longer, but in South Minneapolis sellers generally can afford to take their time in selecting their next home, and then count on the fast market to sell their own home in plenty of time to coordinate closings. As a seller/buyer, you would try to negotiate an extended close on the home you’re buying, say 60-90 days, to give you time to sell. Of course, over the years I’ve had many calls from panicked seller/buyers who bought too soon, before their own house was ready for market. My dog-eared Rolodex has saved the bacon of many of them, as we frantically tracked down workpeople for last-minute repairs and renovations. I’ve seen both sides wrap up within a month, when conditions were ideal: great house, hot market, cooperative principals and Realtors, competent lender and title company. But it’s no fun—and downright impossible if you can’t get ready for market within a few days.
So here it is in a nutshell, Worried—if you want to avoid worry, have your house completely ready to sell before you start looking, even if you just want to peek at a few open houses. Best to select your listing agent, and get her (no gender bias here!) involved in your timetable before you start looking. If that perfect house shows up on the first day, and the seller gives you only 30 days to close, you won’t have time to paint your porch, let alone remodel the bathroom.
Of course there are situations where “buy first” is the wrong approach, notably when it’s obvious that your home would linger on the market—say, an unusual layout or hard-to-sell location. And there are times when it’s best to own both homes for a few months; perhaps to allow for a major project on the next home, or to repair and effectively stage the home you’re selling. Again, get a real estate pro involved early on, before you start looking, to help you make the right decisions. Good luck!
Wednesday, March 9, 2005
Home Improvement in the Real World
Dear Pat,
We read in the newspaper a few weeks ago that replacing our windows could return about 125% if we sold within a year. Our house is pretty drafty, and we'd like to believe the article, but frankly it sounds too good to be true. What do you think?
---We're Skeptical
Dear Skeptics,
All together now, let's say, "If it sounds too good to be true, it probably is." Repeat that over and over when you read articles that specify high percentages and whopping dollar returns when making a home improvement. Remember these articles are often taking their information from "studies" done by associations of remodelers and manufacturers. I don't doubt that some of these efforts to pin down the relative value and return on home improvements are well intentioned, but I question the validity of the data as it applies to individual, real-world situations.
In the real world a house sells for one price, not an itemized price. John and Mary sold their home for $250,000. They realize that with so many variables affecting the final price they can never be sure if they're really getting paid $12,500 for the $10,000 windows they installed just prior to sale. Let's look at just a few of the variables that affect price:
• Overall condition. Your new improvement is only one of dozens of impressions collected by a buyer passing through your home.
• Skill of the Realtor. A Realtor must lead her/his clients through all phases of the transaction, including market analysis and pricing, home preparation and staging, market strategy and materials, advertising, negotiating and closing. Competent performance of these steps can have a greater impact than a single home improvement, and poor performance of any of them can erase the value of all the work you paid for.
• Location. These studies focus on regions or metro areas. In the real world, we know that value (thus, perceived return) varies widely from neighborhood to neighborhood, even block to block.
• Transaction. Every transaction can be structured in a way that nets the seller the same amount, at different sale prices. For instance, sellers often finance points and closing costs for buyers nowadays; some (or all) of this may (or may not) be added to the sale price. Same house, same new windows, many different prices are possible.
Please be aware, Skeptics, that I've exposed only the tip of the variables iceberg; simply putting your faith in a trade association's pre-crunched numbers can be booking passage on the Titanic. Of course there are some general rules to follow, but every situation is unique. Please call an experienced Realtor who knows your area, one who has a clue about the kind of improvement(s) you might want to make, before you commit to a contractor.
We read in the newspaper a few weeks ago that replacing our windows could return about 125% if we sold within a year. Our house is pretty drafty, and we'd like to believe the article, but frankly it sounds too good to be true. What do you think?
---We're Skeptical
Dear Skeptics,
All together now, let's say, "If it sounds too good to be true, it probably is." Repeat that over and over when you read articles that specify high percentages and whopping dollar returns when making a home improvement. Remember these articles are often taking their information from "studies" done by associations of remodelers and manufacturers. I don't doubt that some of these efforts to pin down the relative value and return on home improvements are well intentioned, but I question the validity of the data as it applies to individual, real-world situations.
In the real world a house sells for one price, not an itemized price. John and Mary sold their home for $250,000. They realize that with so many variables affecting the final price they can never be sure if they're really getting paid $12,500 for the $10,000 windows they installed just prior to sale. Let's look at just a few of the variables that affect price:
• Overall condition. Your new improvement is only one of dozens of impressions collected by a buyer passing through your home.
• Skill of the Realtor. A Realtor must lead her/his clients through all phases of the transaction, including market analysis and pricing, home preparation and staging, market strategy and materials, advertising, negotiating and closing. Competent performance of these steps can have a greater impact than a single home improvement, and poor performance of any of them can erase the value of all the work you paid for.
• Location. These studies focus on regions or metro areas. In the real world, we know that value (thus, perceived return) varies widely from neighborhood to neighborhood, even block to block.
• Transaction. Every transaction can be structured in a way that nets the seller the same amount, at different sale prices. For instance, sellers often finance points and closing costs for buyers nowadays; some (or all) of this may (or may not) be added to the sale price. Same house, same new windows, many different prices are possible.
Please be aware, Skeptics, that I've exposed only the tip of the variables iceberg; simply putting your faith in a trade association's pre-crunched numbers can be booking passage on the Titanic. Of course there are some general rules to follow, but every situation is unique. Please call an experienced Realtor who knows your area, one who has a clue about the kind of improvement(s) you might want to make, before you commit to a contractor.
Tuesday, February 1, 2005
Get the Edge in Photo Finish
Dear Pat,
We've decided to buy a house this year, but we're concerned about multiple offer situations after the market heats up in the Spring. One friend suggested we give our agent a good family photo to show sellers if we have to bid against others. He thinks our cute kids just might give us an edge. What do you think?
---Trying
Dear Trying,
I think that idea could cost your agent his real estate license, since it runs afoul of federal and state Fair Housing laws. More bad news: Spring comes early to the housing market (please take note, sellers), and you already stand a fair chance of experiencing multiple offers. So, what to do? Here are some suggestions that might give you an edge--and they're legal:
Solid pre-approval. I'm sure you already know you need to be pre-approved for a mortgage to have your offer taken seriously. But do get a pre-approved letter from a reputable, preferably local, lender. I've mentioned this before, but I can't stress it enough: an internet approval letter does not carry the same weight with sellers and their agents.
Be there first. Be as flexible with your time as possible. If possible, make sure you can leave work during the day to see anything new that looks really interesting. Not all houses sell right away, but the ones that do are the ones you want!
Do a pre-inspection. Unfortunately, many buyers have to forego their independent housing inspection when they're competing in multiple offers. One smart agent we know has her clients get the inspection before they write an offer. This can be expensive if you lose the house, but you'll benefit by the education if you have to keep looking.
Work with an agent who really knows your target area. You may not have time to wait while your agent does market research.
So keep the cute kids in your wallet for now, Trying--but with some planning and flexibility you may be able to move them into a lovely house this Spring. Good luck!
We've decided to buy a house this year, but we're concerned about multiple offer situations after the market heats up in the Spring. One friend suggested we give our agent a good family photo to show sellers if we have to bid against others. He thinks our cute kids just might give us an edge. What do you think?
---Trying
Dear Trying,
I think that idea could cost your agent his real estate license, since it runs afoul of federal and state Fair Housing laws. More bad news: Spring comes early to the housing market (please take note, sellers), and you already stand a fair chance of experiencing multiple offers. So, what to do? Here are some suggestions that might give you an edge--and they're legal:
Solid pre-approval. I'm sure you already know you need to be pre-approved for a mortgage to have your offer taken seriously. But do get a pre-approved letter from a reputable, preferably local, lender. I've mentioned this before, but I can't stress it enough: an internet approval letter does not carry the same weight with sellers and their agents.
Be there first. Be as flexible with your time as possible. If possible, make sure you can leave work during the day to see anything new that looks really interesting. Not all houses sell right away, but the ones that do are the ones you want!
Do a pre-inspection. Unfortunately, many buyers have to forego their independent housing inspection when they're competing in multiple offers. One smart agent we know has her clients get the inspection before they write an offer. This can be expensive if you lose the house, but you'll benefit by the education if you have to keep looking.
Work with an agent who really knows your target area. You may not have time to wait while your agent does market research.
So keep the cute kids in your wallet for now, Trying--but with some planning and flexibility you may be able to move them into a lovely house this Spring. Good luck!
Subscribe to:
Posts (Atom)
