Sometimes a  friend will call or email me and say that he or she is buying or selling a house, has a Realtor but wants my advice about the real estate purchase contract nuances, analyzing comps, or any other real estate related question. Usually it’s someone out of my Silicon Valley market area, though a few times it’s been someone closer to home.

Most professionals don’t want to be asked to give professional advice when they aren’t going to be compensated – this is true for lawyers, doctors, and many others.  But it’s also true for real estate professionals, too.  The problem, though, is not really that some folks overstep the bounds of asking for a favor. Instead, it is a matter of ethics.

I cannot interfere or meddle if you or they have a Realtor.  This is part of our Realtor Code of Ethics:

Code of Ethics
The Code establishes time-honored and baseline principles that come from the collective experiences of REALTORS® since the Code of Ethics was first established in 1913. Those principles can be loosely defined as:

• Loyalty to clients;
• Fiduciary (legal) duty to clients;
• Cooperation with competitors;
• Truthfulness in statements and advertising; and non-interference in exclusive relationships that other REALTORS® have with their clients.

Non Realtor real estate licensees also have boundaries on what they can and cannot do, too.  One big area is that we are not supposed to advice outside of our areas of competency.  I feel pretty good about a lot of areas ranging from Santa Cruz to the south to Redwood Shores to the north and Fremont, Pleasanton or Livermore on the east bay plus all of Santa Clara County.  But I don’t know Sacramento real estate, Santa Barbara Real Estate or San Diego real estate, so it would be wrong for me to suddenly delve into those arenas.  Even more so if that friend or relative asking “for a favor” were working with a Realtor or other real estate licensee and my commenting would constitute interference.

What’s your home buying style?  Impulsive? Cautious? Analytic?  Deep bargain hunter?

A few times in my real estate career, I’ve worked with Silicon Valley home buyers who were so anxious to purchase a home that I was concerned that their impulsivity might be a cause for buyer’s remorse later.  When that happens, I try to slow them down a little – I’ll suggest “let’s look at least a few homes” if it happens that they want to buy the very first home they saw. Part of my fiduciary duty is to look out for my clients’ best interests, and sometimes that means putting the brakes on just a little (or telling them what they don’t want to hear).

More commonly, it’s the other extreme that I see in our very well educated, extremely analytic population: paralysis by analysis or an overabundance of caution. (Sometimes it’s overabundance of bargain hunting.)

The vast majority of successful Silicon Valley home buyers are somewhere in between: they set up their priorities and goals (“I want to buy in the next 4 months at this price with this location or school and this type of property and size of home”). The clearer they are on their goals, wants and needs, the easier it is to help them get it – as long as they have realistic expections. That is key!

Once – only once – I sold a Los Gatos house in which the husband purchased without the wife’s physically seeing it.  This is rare!  They had moved so many times that he understood precisely what mattered to her, and if the house met that list, he was good to go. (more…)

Buying a Silicon Valley home? Understand that unless you are buying “all cash“, you will need to show your real estate purchase agreement to your lender, and your lender may want to see inspections, reports or disclosures based on what you’ve written in that paperwork.  And then the bank, credit union or lending institution may ask for repairs prior to close of escrow, even in an “As Is” sale.

This happened to my buyers a few months back.  They were buying  their first home using an FHA backed loan.  In the offer, we indicated that we would be having a few inspections (home, pest, roof, pool). Because financing with FHA backed loans is a tougher road, the lender did, indeed, require certain work to be done prior to close of escrow.  It was supposed to be an As Is sale so the buyers ended up paying for work to be done in order to close (and the seller allowed us to reduce the price somewhat).  Luckily they were all improvements that my clients intended to make anyway – but it was inconvenient and stressful to have to rush to have the work done, and of course this did cause delays.  (We did discuss not having the inspections listed in the offer, but my clients very much wanted them in it.)

For this issue, does it matter which contract you use, PRDS or CAR?

If you are planning to purchase a Los Gatos, Saratoga or San Jose area home, most likely you and your real estate agent will use either the newest PRDS contract (Peninsula Regional Data Service, employed from Los Gatos to San Francisco) or the CAR contract (California Association of Realtors form which is used throughout the state of CA). (more…)

Many of us cheered to hear that some of the large banks (who have not been wonderful to deal with regarding loan modifications, short sales and foreclosures or bank owned property sales) were getting sued by federal regulators for various types of malfeasance.

Most recently, the Federal Housing Finance Agency, which is in charge of Fannie Mae and Freddie Mac, filed a lawsuit against 17 major banks, including Bank of America, Citibank, Morgan Stanley, and several others (see a complete list here).

So how does this impact you, the Silicon Valley real estate home buyer or seller?

Imagine you’re on the board of any of these institutions.  What do you do to protect your shareholders when something like this happens?  Perhaps first of all, you make sure that whatever you’re accused of doing cannot happen in the future.  You hand down new policies and get them implemented immediately.  No exceptions.

Some of my buyers got caught in this situation, without warning, when their lender informed us that there will be a week-long delay in closing due to new procedures which are mandatory for every file, bar none.  Our loan contingency was removed awhile ago (with the lender’s assurance that all was fine).  We will still close escrow, but late.  This never makes anyone happy.

Right now, if you are trying to buy a house and will be relying on lender financing, I suggest you find out if your bank or lender is involved in a big lawsuit and if so, how this may be impacting real estate purchase contract deadlines.  Most lenders do need 17 days to get you fully approved if you go into the escrow pre-approved (with a real pre-approval, not a pre-qualification only) and 30 days to close the sale.  But if your lending institution is in a messy legal battle, it could take longer, and it could be a surprise.  In escrow, no one likes surprises, especially if they cause any sort of default.

This situation will probably benefit the credit unions and banks which did not misstep with the subprime loans.  Got a great bank that performs fast and is free of legal battles? Please share it here!

If you are purchasing your Silicon Valley home “all cash”, you will be in a stronger negotiating position.  Most of the time, you will get a slight discount on the price and the escrow period should be smoother as there will be fewer hurdles with no financing contingency.  Sellers always welcome cash offers, especially now.

What do you need to know if writing an all-cash real estate offer?

First, make sure you really do have your funds available or “liquid”.  Sometimes buyers think that because they have stock worth a certain amount of money, funds in an overseas bank account or equity in another property they will have access to that cash almost immediately.  It often doesn’t work that way.

Large sums of money coming from out of the United States may have to sit in a bank account for some time, possibly 30 days.  Domestic wire transfers usually have little or no hold time. Is your money overseas? You may want to consider moving it well in advance of the close of escrow. Speak with your escrow officer and Realtor about the details. (more…)

Sometimes I read the queries consumers use in finding my site and chuckle at the questions.  Sometimes I’m horrified (one person asked Google how to kill a squirrel and found my Live in Los Gatos blog as I’d written about an old gopher trap there).  And sometimes the questions are really good, and they inspire a post.  Today I saw the one which asked such a good question about residential real estate listings that it is the subject and title of this article. Today we’re going to talk commissions and how much and what percentage is offered to buyer’s agents.

Disclaimer: commissions are NOT fixed by law.  This is a negotiable fee.  Brokerage companies do have the right to set their fees, though.

Sellers have a right to know about the buyer’s agent commission and what’s happening in their marketplace

Some  Silicon Valley real estate agents do not seem to discuss the buyer’s agent compensation (or commission rate) with the sellers.   This cost, paid by the seller as part of the total brokerage fee, is really a marketing dollar.   It can help to attract the attention that may lead to showings and offers. When the oddball listing comes up with an ultra small number, sellers may not realize that it may dissuade licensees from showing their home. (I once actually saw $1 offered!)

Most typically in San Jose today, what is offered to the buyer’s agent is a commission rate of 2.5 to 3% of the sales price of the home.  Sometimes it’s a flat fee, such as $5000 or $10,000.  At times it’s more than 3% (when the seller is very motivated – I have had good luck using that technique with expired listings that were considered shopworn by the buying pubic and their agents).  On rare occasions the figure is less than 2%.  With my clients, I often run reports from our MLS, export it into an excel file and show them the commission rates offered for homes which are for sale, sale pending and recently sold and closed, especially in unique markets or in places where there’s a lot of variation in this amount.  Very often, the homes that are unsold have an overall lower average commission rate as compared to homes that are under contract or sold & closed.  This number can vary based on area, price point, and sale type (distressed sale vs “regular sale”).  We’ll look at one example next, luxury homes for sale in San Jose. (more…)

Default is a dirty word, but how many Silicon Valley home buyers and sellers understand what a it is?  Consumers often confuse the term default with cancelling the sale at any time – even backing out of a contract during the contingency period for a legitimate reason. Buyers cancelling during the contingency period is very easy to do in most cases and is very seldom a default.

Default is a strong word which refers to a failure to do something promised in contract or not doing it on time; we sometimes call it “non-performance”.  In the purchase agreement, buyers and sellers both make promises to do certain things within a certain time frame, so either one could potentially default.

Defaults don’t always cause the sale to not go through, but they can cause a delay and it may harm the other party – at the very least, not fulfilling the promises of the contract adds unnecessary stress and drama to real estate transactions, which are already, in & of themselves, stressful.

Home buyer defaults

For instance, the following items are areas where a buyer could default (not an exhaustive list):

• not putting the initial deposit (good faith deposit) into escrow on time
• cancelling the sale after removing all contingencies or without cause allowed by the contract
• not removing contingencies on time (or possibly ignoring other deadlines)
• not completing loan papers on time
• not returning the signed disclosures on time
• not bringing “good funds” to escrow in time for closing

Missing contingency removal deadlines may be a default.  For instance, the PRDS contract states on page 1 of that agreement:

BUYER’S  FUNDS:  Buyer  represents  that  all  funds,  including  deposits,  cash  balance,  and closing costs, will be readily available as “good funds” (as determined by Escrow Holder) at  the  time  of  payment.  Obtaining  these  funds  is not a contingency of this Contract.

The loan approval, though, may be indirectly tied to whether or not the buyer liquidates stocks or other accounts to provide the down payment.  What happens if the loan is fully approved except for the verification of this down payment?  The buyer’s job is to have the funds available so that obtaining them later does not cause a delay.  If a delay is caused because the buyer didn’t get the funds ready on time, that is a buyer default.

Not every default is an equally grave problem, of course.  In the case above, the buyer can go ahead and remove the loan contingency and continue to liquidate the down payment assets (which should have been done much earlier in the escrow).  BUT, if the buyer does not complete the sale due to a problem with getting those funds, his or her good faith deposit will be at risk via the liquidated damages clause because getting those funds is not a contingency.

Home seller defaults

Sellers, too, can be guilty of defaulting on contractual promises. Here are some areas in which a seller could default:

• not moving out on time
• not providing completed disclosures or reports on time
• not having work done which was contractually required (such as pest work or repairs)
• not keeping the power & water on for inspections and final walk through
• not providing the loan payoff information, or any other required information, in a timely manner to the title company (escrow)
• causing a delay in closing due to not signing off on time
• refusing to schedule or attend a sign off to sign the closing papers

In Silicon Valley, there are two purchase agreement forms in use: the California Association of Realtors (CAR) contract and the Peninsula Regional Data Service (PRDS) contract.  Generally speaking, the PRDS & CAR contracts are similar on many points.  They are not so similar in the treatment of defaults, though.

What does the contract say about defaults?

Oddly, the CAR contract only mentions the word default twice, and in both cases the topic is a buyer’s default, first in the liquidated damages paragraph (25) and next in the other terms & conditions paragraph (27). (more…)