Contingencies have not been used as much in recent years due to our overheated Silicon Valley real estate market, but with some cooling in the market, we are beginning to see them make a return, so this is a good time to provide a refresher on the subject.
Today we’ll go over what a contingency is, who gets contingencies, what a contingent offer means, and other considerations on how contingencies work overall. This is just an intro article for the basic concepts, but we’ll provide links to more in depth info elsewhere.
What are contingencies?
In real estate sales, contingencies can be a permitted way that one party may back out of the purchase agreement. Of course, those contingencies must have been written into the purchase agreement and agreed to by all parties upfront, when the offer was ratified.
If the offer is accepted with a contingency, it must be satisfied and removed within the set number of days for that contingency, such as 7 or 10 days. If the loan is not approved in that time frame, the buyers may request an extension to try to find other financing or fix whatever is amiss with the current lender, or they may just back out (and normally they would get their full deposit returned to them unless they somehow billed something, like an inspection, to escrow, in which case the bill would be paid and then they’d get the balance back).
Be aware that the number of days requested will be less enthusiastically viewed if they are long, or if they cover information that has already been provided upfront. For example, if buyers got the HOA docs before they wrote the offer, sellers won’t love seeing a contingency to review the HOA documents in escrow.
Long contingency timeframes may hurt the buyers’ odds of offer acceptance, particularly in multiple offer situations, where often completely non-contingent offers may be the norm in our market.
Buyers doing their due diligence makes sense. Among the worst offers for sellers to get are blind offers (sight unseen, sellers’ disclosures often not reviewed) with contingencies. Home buyers who come prepared and taking the offer process seriously will be appreciated.
Who gets contingencies, and why?
Most of the time, if there are any contingencies, they are the buyer’s. These are the most common contingencies in Silicon Valley: (more…)
What is the agent visual inspection, or AVID, and why is it required with home sales in California?
The short answer on the purpose of the AVID
When real estate sales people represent buyers and sellers on residential real estate transactions in CA, they must do a visual inspection of the property as part of their disclosure obligations. In other words, they are required to walk through the property, inside and out, and look carefully at what they sell and advise the parties to the contract of any red flags noticed.
This is required by the state. It is not optional.
If an attentive Realtor walks through and notes something that would make a buyer unhappy to discover after close of escrow, that agent needs to note it on the required form so that any such concerns are disclosed to the home buyer(s).
Video discussing the AVID, or Agent Visual Inspection Disclosure
Where do the agents write up their visual inspection disclosure comments?
Agent Visual Inspection Disclosure, top of page 1
Sometimes the real estate licensees will simply make a few comments on page 3 of the Transfer Disclosure Statement (TDS). More and more, though, they are completing the separate 3 page AVID (Agent Visual Inspection Disclosure) form instead. It is larger and allows for more thorough list of items noted. We’ve also seen agents simply type up a narrative in a word document. The main thing isn’t so much the format as conveying the information so the buyer isn’t surprised later.
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 for these reasons, and more.
Quick points:
It’s key to make sure that your funds are liquid. Stocks can decline in value and make a purchase of a home turn into a a crisis if that happens!
Speak to a tax professional before deciding how much to sell to have the cash on hand, as there are likely to be taxes due on the gain.
You’ll need to provide proof of funds when purchasing, whether it’s an all cash or a financed offer.
Want to close fast? The seller may want to, and with a cash offer that’s possible in most cases.
You may get a slight discount on the purchase price if your offer is all cash, no loan, but not a steep discount.
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…)
With multiple offer situations in Silicon Valley real estate bids, sometimes buyers write an offer and later decide that it’s too much or too little, or that some other change is warranted (before it’s submitted). Can you change your purchase offer after it’s written, or is it a “done deal” once you’ve signed it?
The good news is that you can change your offer before it has been given to the listing agent / sellers. Many buyers do, either because they changed their mind or strategy, or because they just got new information. What is key is circling back to your buyer agent quickly, before the email is sent or the offer is uploaded to the required portal.
Why would you change your purchase offer?
Awhile back, some of my buyers were bidding on a San Jose home. As I asked the listing agent more questions and we got a little more information from that agent on the numbers of offers being received, my clients wanted to improve their offer. They redid page 1 of the contract, which is where all the financial basics are listed. Their improved offer went to the listing agent and it was seamless.
At other times, even after the offer is submitted, I have had buyers ask to improve their offer. The pages of the contract which were involved in the change were redone, signed and resubmitted. (Sometimes it’s easier just to redo the entire offer. Either way works.) This is a bit like going through the counter offer process yourself. (more…)
Disclosing death on a property is required in California home sales for 3 years after the person passes. The Seller Property Questionnaire asks if the seller is aware of:
Within the last 3 years, the death of an occupant of the property upon the property (yes / no)
(Note to seller: The manner of death may be a material fact to the Buyer, and should be disclosed, except for a death by HIV / AIDS.)
Some points to note regarding this form and disclosing death on a property:
The question does not say “in the house” or “in the garage”, but upon the property. Included is anywhere within the property boundaries.
If someone died further back than that, the seller is obligated to answer truthfully if a buyer asks if there was ever a death on the property.
Oddly, it specifies “an occupant” of the property rather than any death at all. I suspect that any death would be of interest to a buyer, and possibly a material fact. An attorney would be the best person to answer that question.
Deaths from crimes, or which would be a stigma, such as a suicide or murder, should be disclosed even if it’s been more than 3 years since that’s an issue which may materially impact value or desirability. There’s no question on the disclosure forms that asks this. It falls under the general requirement to disclose anything that a buyer may be seriously concerned about, such as a stigma.
What about disclosing death on a property which is part of a condo complex?
First, it’s important to understand that detached homes, townhomes, and condo units that look like apartments can all be condominiums – condos are a type of ownership. They aren’t an architectural style. The comments below MAY apply to townhomes, or possibly other types of structures, if that home is held in condo ownership.
With condominium ownership, the owner owns the interior airspace of the living area (sometimes also the garage, but sometimes not) and owns a percentage of the common areas of the parcel. The condo owner is a partial owner of the entire parcel or property.
If there’s a death in a condo complex in the common area, will that be shared in the disclosures? It should be, whether the death was inside the unit for sale or anywhere within the common area of the parcel boundaries. (more…)
Real estate is always shifting, and now that is more true than ever. Will buyer’s agents become obsolete with the cataclysmic transitions we’re facing? Today we’ll touch on:
The role of expertise in real estate transactions
What do buyer’s agents do?
The impact of the recent NAR settlement and industry changes coming
Do consumers value expertise? If so, don’t expect that buyer’s agents become obsolete.
After all, a lot of data is online. The thinking goes, travel agents are mostly gone and journalists are being replaced by bloggers. It’s possible that this will be the case for buyer’s agents in the future, as there is a trend in thinking that there are no real experts if everyone has access to information.
A few years back, I heard about a book that takes on this concept regarding expertise and it really resonated with me. The title is “The Death of Expertise: The Campaign against Established Knowledge and Why it Matters“. Confession: I have not yet read it, but want to do so. I did hear it discussed on KGO Radio by Pat Thurston, who was one of the radio personalities there, and her take on it was that it presents the concept that everyone’s opinion is as good as everyone else’s opinion.
That certainly does happen in real estate, along with the persistent idea among some consumers that buyer’s agents don’t really add any value other than unlocking doors. (I wrote about this idea that “it’s all on the web” so buyer’s agents aren’t perceived to be needed back in 2013.) Even this morning I had someone email to ask me if I would split my commission if they bought a home with me and would “do all the research”. The answer, by the way, is no.
You can have a 20 or 30 year veteran Realtor with oodles of transactions, but a home buyer armed with a real estate app may not always know what he or she doesn’t know. And that’s dangerous. Information does not equal knowledge or skill.
Will buyer’s agents become obsolete? Before thinking that they will, learn what they do and what they know and why their clients appreciate them.
What do buyer’s agents do that consumers don’t do as well for themselves?
A good buyer’s agent will be able to help with these items (and many more, depending): (more…)
Simply put, these are when a home buyer and his or her or their agent write up a bid on a proper form such as the PRDS or CAR contracts, but orally or otherwise casually tells the seller or the listing agent of a price that the buyer would offer for the property.
Communication from a buyer or buyer’s agent that the client would like to purchase the property for a particular amount of money.
Sometimes they also include some of the contract terms, such as “all cash offer” or “no contingencies” or “30% down”.
Most of the time, the buyer doesn’t want to spend the time to write it up unless there’s a verbal assurance that the seller will accept the offer.
With a verbal offer (which could be in person, by phone, by email, by text, etc.), there’s no proof of anything – no proof of funds, proof that the disclosures have been reviewed, and so on.
This is a terrible idea, whether you’re a buyer or seller. But why?
Verbal offers are not serious offers
First, there are a LOT of terms in the offer besides just the price. They include things like the loan amount and percentage (80% loan to value ratio or something else), the amount of the initial deposit and when it will go to title, whether the buyer is preapproved or not, the number of days for various contingencies, how long the escrow should be, what personal property should be included, and much more.
Often those terms are extremely important. Consider just one: all cash versus financed! Verbal offers are usually only the price being floated by.
Written offers, not verbal offers, come from committed home buyers
If a home buyer is sincere and serious about purchasing property, he or she will get it in writing and be specific about the myriad of terms that are part and parcel of the agreement. A seller cannot fairly even consider a verbal offer because so many of the terms are simply missing in action. (more…)
What is an exclusion in a real estate contract? What is an inclusion? Both of these refer to fixtures at the property which is for sale. If you want to sell your home, it’s very important to understand the “law of fixtures” as it relates to what you leave and what you take with you – unless the inclusion or exclusion is specified in the contract.
In brief, built in or affixed items become real property and transfer with the sale (or as Realtors say, “conveys”). If something is built in, like a light fixture, but the seller and buyer agree in the contract that the seller can remove it, then it becomes an exclusion, as it is excluded or omitted from the sale.
If something not built in is allowed to remain behind, such as a garden hose, pool table, or curtains, then it’s an inclusion, as it’s included even though it is not real property.
Curtain rods are built in, so they are fixtures and therefore real property. But the curtains that hang on them are not built in, so they are personal property.
2 minute video explanation
What is a fixture?
Generally speaking, a fixture is any item affixed or attached to the house, townhouse, condo or property which is installed with the intention that it be there permanently. The only exception is if something is bolted for earthquake safety.
Examples of fixtures (items which stay or are included):
If you are buying or selling a home in Silicon Valley today, you may be considering including the option to have a seller rent back after closing. What does this mean?
What is a rent back?
A rent back refers to the seller staying in possession of the home after it’s been sold to the new owner. Sometimes it is free, other times there is a cost. Normally, a security deposit is paid and held in escrow or by the new owner. (These are sometimes called rentbacks or rent-back agreements.)
Most of the time, it’s for 60 days or less, because longer than that and the buyer’s lender will consider the property as “non owner occupied” and the interest rate will be higher.
Upon close of escrow, the buyers get a gets a set of keys, but can only enter the property for certain reasons.
Brief video on rent back highlights
Rent back agreements
If you are going to do a rent back in Santa Clara County, you may run into one of three forms that sets this agreement in writing. These can impact each party’s rights and responsibilities.
CAR Forms
With the California Association of Realtor forms (CAR forms), there are two distinct addenda depending on the length of stay for the rent-back after closing. (more…)
Contingent offers are making a comeback as our Silicon Valley real estate market is becoming less intense of a seller’s market and inching a little more toward balanced market conditions.
What is a contingent offer? A contingent offer is a contract on residential real estate which is based on the contingency of or subject to the sale of another property.
A contingency is a way out of the contract. If “xyz” doesn’t happen, then someone (whoever has the contingency) can get out of the obligation to complete the sale. For example, a loan or financing contingency is very common when someone buys a home. But if the loan falls through, at least under some circumstances, the buyer can back out with little or no consequence.
When there are not multiple offers, we tend to find normal contingencies relating to financing, appraisal, property condition, title documents, and related items (approval of the CCRs, HOA docs if any, lead paint tests and more). Of course, if the seller has provided a lot of information upfront, it’s less likely that the buyer will include continencies for what has been given upfront.
Sometimes the seller has a contingency (finding a replacement property, selling short and needing bank approval, or in the case of a sale after death perhaps the approval of the trustees or a right of first refusal of close relatives to purchase the house). Once in awhile, though, there is a sale subject to the sale of another house. Often this is referred to as a “contingent sale”, even though most offers have some contingencies. We do not see these kinds of purchase agreements accepted too often in the current market in Silicon Valley.
Contingent offers: they are not all the same!
A contingent offer in the San Jose or Los Gatos area may come at any stage of the home selling business:
the home may not yet be on the market
the house may be on the market but not yet under contract
the property may be on the market and sale pending (under contract), but the buyers’ contingencies are still in place
the property is on the market, in escrow (under contract) and contingencies are all removed – it is close to closing escrow
As you can imagine, there are varying degrees of risk involved with a Santa Clara County home seller accepting contracts with these various scenarios. The closer a property is to closing, of course, the more likely it is to close and the smaller the risk. If it is not yet even on the market, the risk is far greater. (more…)
Helping nice folks to buy and sell homes in Silicon Valley
Mary Pope-Handy, Realtor ABR, CIPS, CRS, SRES
Christie's International Real Estate Sereno, Los Gatos, CA 95030 408 204-7673 Mary@PopeHandy.com License# 01153805
Clair Handy, Realtor
GREEN
Christie's International Real Estate Sereno 214 Los Gatos-Saratoga Rd Los Gatos, CA 95030 ClairHandy@sereno.com License# 02153633
Mary & Clair sell homes throughout Silicon Valley: Santa Clara County, San Mateo County, and Santa Cruz County. with a special focus on: San Jose, Los Gatos, Saratoga, Campbell, Almaden Valley, Cambrian Park.
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Mary Pope-Handy, Realtor ABR, AHWD, CIPS, CRS, SRES Christie's International Real Estate Sereno DRE License #01153805 408-204-7673 mary@popehandy.com “Helping nice folks to buy and sell homes in Silicon Valley since 1993”
Clair Handy, Realtor, GREEN Christie's International Real Estate Sereno DRE License #02153633 408-721-6160 clairhandy@sereno.com “Helping nice folks to buy and sell homes in Silicon Valley”
This is the Valley of Heart's Delight blog , covering Silicon Valley real estate - Santa Clara County, San Jose, Los Gatos, Cupertino, and nearby communities in the South Bay Area and lower Peninsula. Find info on neighborhoods, disclosure issues, buyer and seller tips, and housing market conditions in the west valley and most of the county.Please also see my other websites and real estate market statistics site, which are listed in the sidebar, above.
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Mary Pope-Handy, Realtor ABR, CIPS, CRS, SRES Sereno DRE License #01153805 408-204-7673 mary@popehandy.com
“Helping nice folks to buy and sell homes in Silicon Valley since 1993”
Contingencies have not been used as much in recent years due to our overheated Silicon Valley real estate market, but with some cooling in the market, we are beginning to see them make a return, so this is a good time to provide a refresher on the subject.
Contingent offers are making a comeback as our Silicon Valley real estate market is becoming less intense of a seller’s market and inching a little more toward balanced market conditions.
