Multiple offers are a joy to home sellers and a nightmare for home buyers.  There are many disclosures warning of the dangers of overbidding and giving away too many rights in the purchase agreement, and rightly so.  You certainly never want to give up that which will make you overly vulnerable (such as no contingencies for financing or property inspection).   At the same time, though, to actually be the winning bidder, your offer must be better than everyone else’s.  Financing terms can really “make or break” your offer.  Today we’ll discuss a couple of those financing terms: the initial deposit  & the increase of deposit (and related issues of liquidated damages and default).

What are financing terms?   They are all the details of how exactly you will pay for the home and get money into escrow.  For example:

• good faith deposit (initial deposit)
• increase of deposit (if needed)
• loan type (conventional, FHA, VA, seller carry?)
• loan costs (will you pay or are you asking the seller to help pay?)
• loan terms: are they realistic?
• is there a pre-approval letter or a pre-qualification letter?
• what is the total downpayment amount? (and % of purchase price)
• will you provide the “proof of funds” to the seller?
• will you submit a copy of the check with your offer?

The initial deposit or good faith deposit is the amount of money that you’re “putting down” with your offer.  If your contract to buy the home is accepted, that check will be cashed within a day or two, so make sure that you write one that will not bounce!  In the San Jose area, most real estate agents write the offer such that there are three business days to get that money into the title company (which handles escrow services in northern California most of the time), but make sure you know how many days it is because it can be variable.  It is written right in the contract, so read & understand it.

(Please note that except for the initial deposit, the rest of the contract will reference days, not business days, if your agent is using either the CAR or PRDS purchase agreement form, both of which are standard in Santa Clara County and San Jose generally.)

Smart real estate agents will usually look for 3% deposit when a home sells, preferably in the initial deposit, but possibly part in that first check and the balance in an “increase of deposit”, which normally would happen when all contingencies are removed.  If you are competing against other homebuyers and your deposit is less than 3%, your position is weakened relative to theirs.

Why does the 3% target matter so much?  The reason is that it’s connected to the liquidated damages clause.  The liquidated damages clause is something buyer and seller would need to agree to for it to be enforceable, so in our PRDS or CAR purchase agreement forms there’s a place for buyers and sellers to initial it if desired (and in my experience, everyone does initial for it).  The deposit (and possibly increase of deposit)  is the potential penalty if the buyer defaults on the purchase.  (I’ll speak of defaults below.)  

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Buying & selling a home is usually stressful for consumers, and some circumstances can heighten the anxiety further (being in multiple offers, buying a distressed home, or anything out of the ordinary).  Once you write an offer or receive one on your property, you may feel like a nervous wreck as you navigate the escrow period. In some cases, you may come down with a bad case of buyer’s remorse or seller’s remorse.

We’re In Escrow: Now What?

You will want insights and advice so that you’re sure that you are doing the right thing each step of the way.  Even if you have a great Realtor who thoroughly understands Silicon Valley real estate and is a fantastic communicator, perhaps you want some assurance from an outside source (who’s not being paid for closing the deal) that you really are making good choices in the home sale.

There are a bunch of bad ways to do this but also some good alternatives.

What not to do:

1. Don’t call all of your local Realtor friends whom you didn’t hire and ask for their input.  First, it’s not fair to them as businesspeople that you want their professional input but not for compensation.  Second, they aren’t supposed to meddle and it puts them in an akward position of “implied agency” in which they take on some risk (being your expert upon whose advice they rely) without the benefit of ever getting paid.
2. Beware the well-intentioned advice of non-professionals who may not be up to speed with the current market conditions, construction, your purchase agreement, etc.  Sometimes the “over the cubicle wall” advice can be very, very upsetting as these folks get a homebuyer or home seller freaked out – often over nothing or over a misunderstanding of the situation due to a lack of information.   Most often, this “advice” is from completely unqualified people and will compound problems rather than help to solve them.

How about some good alternatives?

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Several people, companies, and systems assist me in my work with buyers and sellers in Silicon Valley. Most often, my clients will not see or speak with many of them much (if at all), but they are all part of the package, if on the “back end” much of the time.

Within My Brokerage:

At my brokerage, Sereno Group in Los Gatos, my escrow coordinator, Kathy Wimble, makes sure that the paperwork is complete. With a myriad of places to sign and initial and papers not to forget, it’s helpful to have a second set of eyes on the file. Additionally, other agents also review the file on behalf of Sereno management. When there are legal questions, which can come up from time to time, we have a legal counsel available through Ryan Iwanaga, my manager, or Chris Trapani, the CEO of Sereno Group, and we get answers back within a business day, if not a few hours. Finally, there are several agents who assist me in some cases (vacation, sickness, family emergencies). So I’m well supported on the office or firm level. When you hire me, you get a full staff behind me.

Outside Specialists:

(A) INSPECTORS

Whether buying or selling a silicon valley home or investment property, good inspections are critical. I don’t have one list for buyers and another for sellers – no matter which end of the transaction you’re on, you want excellent information. Surprises tend to sour escrows, so part of the plan in helping you avoid trouble is to avoid surprises. Only with excellent information can you make good decisions and have more control of the way your real estate sale progresses.

1. Home or Property Inspectors. It is crucial that your property inspector be exceedingly well trained, experienced, careful, clear, and through. In California, there is no license for home inspectors. However, there are a couple of trade groups which have a very high standard of practice. One is ASHI (American Society of Home Inspectors) and the other is CREIA (California Real Estate Inspection Association).

There are many good home inspectors in the San Jose area, but my #1 choice is Duane Serrano of Tri Star Home Inspections. Duane is an ASHI member with 15 years experience. I have not found him to either miss or over call issues (I have sometimes had inspectors who say a chimney or roof is bad, have the clients hire more experts, only to find out that it was fine – that aggressive over-calling is expensive, time consuming and upsetting). Duane also provides my clients with suggestions as to solutions and how to make the home last longer with proper care. He gets the reports out, with digital photos, on a same-day basis. Duane’s website is http://www.tristarinspections.com/ or he can be reached by phone at 408 266-2706.

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