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Verbal offers to buy real estate are a bad idea

Verbal offers - are they real? Image of a house with those words and a real estate agent on the phone in front3What  are verbal offers to buy a home?

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.
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Seller rent back after close of escrow: what do you need to know?

Graphic image with house in the background and words in front: Seller rent back after close of escrow - what do you need to know 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.
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What is an exclusion in a real estate contract? What is an inclusion?

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):

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Why do real estate agents do a visual inspection of the properties they sell?

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

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. Both approaches are permitted by law to fulfill that obligation, though.

 

Why is the AVID required?

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What does work finaled mean?

When completing or reading home sale disclosures, you may see something about “work finaled”. What does that mean? It’s simply asking if the county, city, or town inspector came to the property to sign off or final completed work. This happens after the home owner has paid for permits, had the work completed, and then scheduled the government inspection. The contractor may also arrange for this final inspection.

Work finaled in disclosure forms

This phrase will be seen in the PRDS Supplemental Sellers Checklist. That query will come right after one asking if permits were obtained.  The reason that they are together is that “work finaled” means was the permit work finaled by the town, city or county inspector.

Form asking if there is work finaled

In short: if a seller did not get permits, the seller did not get the work finaled.

Often I find that this gets mixed up. Sellers divulge that they did not get permits, and then say that the work was finaled.

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Should You Buy or Sell Your Silicon Valley Home “As Is”?

For Sale As-IsWhat is an As Is Sale?

Many Silicon Valley home sellers want to sell their homes “as is” (or “as-is”). And most homes in today’s market are. But what does that mean, exactly?

Does it mean that the seller has made no repairs or renovations before listing the home? Or that they do not have to disclose if something is broken to a potential buyer? No.

As is means that the home will be conveyed to the buyer at the end of the transaction in the same general condition it was in on the day that the buyers wrote the offer. If the roof has leaks, the crawl space is full of termites, and the appliances do not work, that is how it will be on the day escrow closes.

What it means is that the seller cannot let the property condition deteriorate during the course of the escrow.

The seller must continue to maintain the home and land in the same general condition. So if the lawn was green and well trimmed, the seller cannot suddenly let the grass die and neglect to mow it. If a baseball breaks a window after the buyer and seller have entered into contract, the seller must repair it. The condition will not have to be better, but it should not be worse than it was on the day the buyer and seller agreed on the price and terms of the sale.

While the contracts most agents use in Santa Clara County and nearby today have “as is” as the default sales agreement, that doesn’t mean all sales are as is.

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What does it mean to be “out of contract” in a home sale?

Is your indecision putting you out of contract? Worried looking woman with laptop computer.Every region of the country has some unique real estate vocabulary and phrases.  Here, in Silicon Valley, when we say “you’re out of contract“, it’s another way of saying “you are not doing what you promised to do in the purchase agreement that you signed” (meaning the real estate contract).  In other words, there is a seller or buyer default happening.

“Out of contract” is not a legal term. I remember hearing a local real estate educator say “there’s no such thing”. It’s not an official status. But it is a way of describing behavior that’s not in alignment with the contract’s express promises.

Contractual “Save the Dates”

Both sellers and buyers make promises to do certain things and most of these promises are tied to time frames or dates.  Here are a few of these time-sensitive promises or contractual obligations:

  • sellers agree to leave the utilities on until close of escrow
  • sellers promise to maintain the home until close of escrow as it was on the day the property went into contract (so mow the lawn, water it etc.)
  • buyers assert that they will get their initial deposit to title within a set number of days (the California Association of Realtor’s form states 3 business days or provides a blank to fill in an alternate number – it’s often 1 business day here)
  • buyers promise to remove contingencies within the times they stipulated in the offer
  • sellers will move out in according to the date set out in the contract
  • indecision over material facts or between buyers may make it hard to decide whether or not to remove any contingencies
  • buyers agree to take possession (move in) per the time/day agreed to in the purchase agreement (not before)
  • sellers bind themselves to having repairs done in a certain manner (depends on contract and clauses, if promised)

At one time or another, I have seen all of these items not adhered to by the parties who were supposed to make good on their word, and stranger violations that I don’t want to write about here lest I give someone a bad idea. I have seen sellers not move out on time (in some cases, elderly sellers who grossly misjudged the effort required to vacate.)  The failure to do so causes stress and anxiety, and sometimes worse: fear and anger.

Out of Contract: Why the Delay?

Sometimes, when either party is consumed with worry, a kind of emotional paralysis can set in. Luckily that is rare, but I have seen it. Buying and selling a home is extremely stressful, and once in awhile it coincides with other things: the death of a family member, a diagnosis of cancer, a divorce, a relocation that one party doesn’t want. So many things can happen at the same time. You may have heard the saying that “a confused mind says no”. With real estate, the confused mind doesn’t write or accept an offer, or doesn’t move forward as planned.

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Coronavirus impact on real estate sales

Graphic of a house under quarantineThis post on the coronavirus impact on real estate sales here in Silicon Valley is updated periodically, depending on unfolding events, so please check back often.

The market for houses is hot (still)

The coronavirus pandemic caused a worldwide surge of buyers rushing to purchase homes with more square footage, more rooms (home office, room for elderly parents to move in), and more outside space.

Locally, single family home prices rose about 20% over one year, despite the initial lockdown and restrictions on showings. Pools had not been so desirable pre-Covid, but now they are more sought after as buyers want to vacation at home.

Initially, it was challenging to sell a condo or townhouse, particularly if there was no patio, balcony, yard, etc. Those homes did start appreciating, but have not performed nearly as well as detached housing has.

Now, in September 2021, many of the requirements have been lifted. Buyers are still interested, but the steep appreciation has priced some buyers out of the market.

Quick overview of what is and isn’t allowed with real estate listings and sales

The landscape for home sales is complicated and more restricted than pre-pandemic times, but easier than it was in March – May 2020. The market is strange in many ways, but it is possible to buy and sell now and actually is not so hard at this point.

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NEW California Disclosure – Home Fire Hardening Disclosure and Advisory

Fire Hardening and Defensible Space Advisory Disclosure and AddendumJust about every year California amends what sellers are required to disclose, and one change that I think we’ll be seeing a lot of is about home fire hardening. Many agents, including myself, will begin to use the fire hardening disclosure / document (which has already changed once in six months). The current one, as of June 2021, is the C.A.R. Form FHDS, 5/21 Fire Hardening and Defensible Space Advisory, Disclosure, and Addendum.

So what is in this document, who will have to use it, and how can it help buyers and current home owners?

The CAR Fire Hardening and Defensible Space form is a two page document completed by the seller of a residential non-commercial property to notify the buyer of fire hazard zoning, code compliance, and possible vulnerabilities and/or defensible features. Both the buyer(s) and seller(s) sign to acknowledge receipt and consent to comply with the appropriate terms in paragraph 4B.

Who Will Use This Form? Paragraphs 1 and 2: Prerequisites

This disclosure is required for homes (1-4 unit residential properties) in high or very high fire hazard severity zones when the seller must complete a Transfer Disclosure Statement (TDS form). Sellers for California real estate transactions falling within those criteria are obligated to provide specific information contained in this form to the buyer. If these properties were improved or were built before January 1, 2010 there are additional stipulations. However, use is not restricted to properties in these zones.

Owners of residences where the zone is unknown, or those outside of the designated fire hazard zones which are “in, upon, or adjoining a mountainous area, forest-covered land, brush-covered land, grass-covered land, or land that is covered with flammable material,” (Gov’t Code 51182 and 1C in CAR FHDS 5/21 – basically, homes in or near ample kindling) should also make these disclosures if they might be considered materially important. Even when it’s not legally necessary, any homeowner might voluntarily disclose using sections of this form. To show that a home is not in a designated high or very high fire hazard severity zone, sellers simply check the box indicating so in paragraph 2B.

Is the address in a high or very high fire hazard severity zone?

Not all homeowners know if their property is in one of these zones, but it’s the seller’s responsibility to find out! In paragraph 1B the form suggests that a natural hazard zone disclosure company could determine this information (and if you’re selling you may have already ordered a report that would contain those details), but it certainly isn’t the only resource.

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Can you change your purchase offer after it’s signed?

Pen and edited text with the words - Can you change your offer? 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.

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. We 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. This is a bit like going through the counter offer process yourself. (more…)