For a long time, Silicon Valley real estate agents have expected home buyers to be preapproved, not just prequalified, for a mortgage or loan when they submit an offer to buy a property. So the offer package would consist of an agency disclosure, the contract (PRDS or CAR), and a preapproval letter from the home buyer’s lender. (Some listing agents require the buyer to be preapproved with the listing agent’s lender. This is especially true with REOs.)
Over time, a few disclosures got signed to go with the submission, too – such as one on the dangers of writing non-contingent offers, another on brokers potentially submitting offers for competing buyers, etc.
When the market gets overheated, as it is now, listing agents begin to require even more things upfront, with the offer – not after it’s been accepted. In many cases, listing agents want all disclosures signed upfront, plus the covers of any inspections. This often means initialing and signing 60+ pages.
Cash offers traditionally come with “proof of funds”. That means bank statements or eTrade or other statements proving that you’ve got the money. Sometimes it’s a portfolio showing how much stock one owns. (Last week I got 22 offers on a listing and one agent, who”s been in the business for decades, showed me his preapproval letter when I asked for the proof of funds. He didn’t understand.) Naturally, we black out or white out or otherwise obfuscate the account numbers for safety’s sake. In recent years, though, the strongest offers come with proof of funds no matter the size of the down payment. Many Realtors in the San Jose, Los Gatos, and Saratoga areas expect it.
Buyer’s agent: do your visual inspection upfront, too….
A few times over the last year, though, I ran into a new listing agent requirement: the TDS (Transfer Disclosure Statement) comments or AVID (Agent Visual Inspection Disclosure) form were to be completed along with the offer package. What does that mean? The Transfer Disclosure Statement, on the third page of that form, has a section for the buyers’ and sellers’ agents to make comments after doing a diligent visual inspection of the property. In many cases, rather than use that small amount of space, instead the realty professionals will complete a multi-page form called the Agent Visual Inspection Disclosure, or AVID.
Why did that listing agent want the TDS or AVID section completed upfront? Apparently it was to remove or lessen the threat of buyers backing out due to the statutory 3 day right of rescission which they are given when provided with the sellers’ TDS or any material disclosure (significant).
If buyers purchase a home with a period for investigating the property, usually called a property condition contingency, the TDS 3 day right of rescission usually is a non-issue. But today, many home buyers are purchasing properties not only AS IS, but without any contingencies of any kind: not for loan, appraisal, inspection, or anything else. If they make a non-contingent offer, though, they still have that 3 day period where they can back out. By demanding the AVID or TDS comments upfront, the listing agent is hoping that this right will be all but waived.
I’m not sure that this is a good practice. My gut feeling is that this is pushing too much, removing too many buyer rights. After the explosive sellers’ market here in Santa Clara County and San Mateo County in the year 2000, where so many buyers gave up so many rights just to get into a home, we had the lawsuits that follow. Buyers knew they’d been taken advantage of by sellers who perhaps were not realizing how dangerous it can be to strip a buyer of all rights.
Hopefully this practice won’t spread, but we have a creeping list of demands on buyers and their agents that grows ever larger. Where will it stop?
Some very interesting related reading – an arbitration in San Jose over the question of the buyers’ 3 day right of rescission, when it kicks in, how delivery must be made etc. Looks like it may not be so easy to remove this right from buyers! (If you are curious about this, don’t call a Realtor, call an attorney, please.) Do have a look: