Real estate negotiations: it’s not just business

Although most of the time, a home seller’s main concern is with getting the highest price (or net), that’s usually not the only concern – and sometimes it’s not even the most important one.  Selling one’s house, townhome or condo is highly personal and not just a business decision.  The relationship with the buyer and their agent is extremely important. It can literally make or break the deal!

So let’s talk about the things which can help or hurt the relationship between the buyer and the seller.

Selling relationships

With multiple offer situations, many home buyers in Silicon Valley know that it’s in their best interest to write a nice letter, perhaps with a photo, discussing why they love this property.  A lot of garbage clauses go out the window when there are multiples.  But now, in the San Jose area we are seeing a return to normalcy and many bids are not multiple offer situations.  Some buyers think that it’s no longer necessary to try so hard.    I’d advise against acting on this impulse, because the little things, or lack of them, can cause a transaction to succeed or fail.

In recent weeks I’ve seen home buyers shoot undermine their own best interests by dragging their feet on negotiation response times, asking for unreasonable things in the purchase offer, or having a buyer’s agent who appeared incompetent.  Think of the offer process as a courtship and ratifying the sale as a marriage.  If the courtship is rocky, why would the marriage be any more promising?  The market remains a seller’s market, if a calmer one, but home owners don’t want to be mistreated.

The old adage that “you only get one chance to make a first impression” is still true with real estate contracts and negotiations.  If you don’t present yourself well, with your Realtor’s help, then the seller is not going to want to sign an agreement that ties them to you for the next month or two.  And he or she certainly won’t want to see you in their beloved home.

How to write your initial deposit check, or good faith deposit check, all wrong

Good checks acceptedHome buyers might be surprised that there’s a right and wrong way to draft the check for the initial deposit or earnest money when a real estate contract is presented here in Silicon Valley.

Right way – Be Specific:

  • Find out the name of the title company and make the check payable to that particular title company
  • Put the property address in the memo line
  • Write a new check for every offer

Wrong Way – :

  • Leave a big, blank space and write only Title Company in the “to” line
  • Write a generic initial deposit number that has nothing to do with your offer (not 3% of the offer amount)
  • Leave the date blank so that your agent or someone else can fill in the date later (with different hand writing & ink)

Why does it matter?  The first way, the seller and listing agent know that you are interested enough to find out where escrow is opened and to write a check for this particular property.  The second way is as if you are throwing spaghetti at a wall to see if it will stick. (Yes, throwing cooked spaghetti at a wall IS a good way to know if it’s cooked, but it doesn’t work well for much else in life.)

Perhaps if your offer is the only one, the effort you put in with this small detail will seem moot.  But if you are up against multiple offers, shortcuts on your part, or your agent’s, will count against you.  Put it this way: if you don’t look serious when you’re trying to make a good impression (think of a courtship), how will you be in escrow (think marriage)? If it’s bumpy now, it doesn’t bode well for the future – and you might be eliminated from the running since you’ve failed to make a better first impression. So slow down and do it right!




Congratulations, your home is “sale pending”! What happens next?

Congratulations your home is sale pendingIf you have had your San Jose or Los Gatos home on the market and just gotten it under contract, or sale pending, you may be very excited and happy.  Perhaps you’re a little worried too.  What should you expect now that you’ve got a ratified offer?

Each purchase agreement is a little different from every other one, so this article cannot give you an exact road map.  But let’s look at the big picture and touch on what normally happens to give you an overview.  We’ll do this in a simple list – which is not exhaustive!  Your real estate professional can provide you more info specific to your transaction.

  1. You should get a copy of all the paperwork which you have signed (electronically or paper)
  2. A timeline is usually given to the seller by the listing agent, an assistant, transaction coordinator or someone else involved in the sale (so that you know the major dates)
  3. The buyer’s initial deposit or good faith deposit should go to escrow (most often within 3 business days, most often a check but sometimes by wire)
  4. In Silicon Valley, normally buyers and their agent get disclosures from your listing agent prior to submitting their bid.  If they did not return the signed disclosures with the offer, this should be done not too long after the offer is accepted and certainly within any contingency timeframe for property condition.  The buyer’s agent will need to do a disclosure after walking through the property and carefully noting the condition (this is the AVID or Agent Visual Inspection Disclosure), so expect him or her to need to visit your property and spend some time looking at it carefully.
  5. The buyers may order inspections or have a walk through with the home inspector that you hired prior to putting your property on the market
  6. Assuming that this is a normal sale with some buyer contingencies, there will be a deadline for them to be removed.  Depending on many factors, the buyers may want to renegotiate some aspects of the contract after obtaining inspections or further information on the house, townhouse or condo.
  7. Once all contingencies are removed, you’re in the home stretch!  The next big events are the signoff at the title company and the final walk through, both of which tend to happen within the last week of the escrow period.
  8. Sometimes there is a seller rent back or lease back, and the seller may stay past the close of escrow date if that’s part of the agreement.  Normally, though, the seller must be fully out of the home on the day of closing, and the property should be reasonably clean or “broom clean”.  You’re not expected to wash the carpets and windows, but there should be no debris, the home should be fully empty and vacuumed and generally cleaned up after everything is gone.  Most sellers hire a cleaning crew to do this either the morning of the closing or the day before.

These are general milestones, not a complete list of what to expect. Want more info?  This is covered in more depth in my book, “Get the Best Deal When Selling Your Home in Silicon Valley“.

What happens after a purchase offer is submitted?

what is happeningIn the San Jose area, probably 90% or more of real estate purchase contracts are emailed to the listing agent by the buyer’s agent.  In the old days, the standard of practice was to have a live presentation by the buyer’s agent to both the listing and agent and the seller(s). Can the buyer’s agent present the real estate purchase contract directly to the seller and listing agent in Silicon Valley? Yes – it’s just not so common anymore.

Either way, what happens after the contract has been delivered or presented?  If it’s a live presentation, the buyer’s agent will be asked to either leave and be called later (or emailed) or requested to take a seat in the lobby (or in his or her car, if at the seller’s home) and wait while a private discussion happens between seller(s) and listing agent.  From there, it could be some questions to clarify why things are a certain way (such as a low initial deposit, a long escrow or long contingency time frames).   Questions aside, the response could be quick if it’s a super clean offer and the only one presented (or in the wings).  Conversely, it may be several hours, or possibly longer, before hearing back with an acceptance, rejection, or counter offer.

It’s similar with an email presentation.  You might get questions or clarification requests right away (ideally one call with all questions, rather than a stream of them over several hours) coming from the agent and/or seller through the agent.  Or you may not get much other than an acknowledgement that the paperwork was received.  You may find yourself waiting and waiting….

What’s happening behind the scenes if the response is not forthcoming in a short period of time? (more…)

Can the buyer’s agent present the real estate purchase contract directly to the seller and listing agent in Silicon Valley?

Real estate contracts welcomeIt has become the norm for Silicon Valley residential real estate contracts to be emailed from the buyer’s agent to the listing agent.  In years gone by, that wasn’t the case – “live presentations” were the norm instead.  The buyer’s agent would ask the listing agent to set up an appointment and the two of them plus the seller(s) would meet, usually at the listing agent’s office but sometimes at the seller’s home, for this offer presentation. There are many advantages of presenting and receiving offers in person, despite its current lack of popularity.

The shift came with the prevalence of email and the privacy presumed to accompany it.  For awhile before email took off, some real estate professionals were faxing offers.  That saved time but seemed risky on a couple of levels.  It never seemed very secure until efax came along (taking faxes directly to one’s email). Most faxes in the early days of using that machine belonged to the office. Anyone hovering by the fax machine could see very well the paperwork coming through.   Just as seriously, though, it took away the ability to read the situation in person, to answer questions or to make a positive impression that would help the buyer’s odds of success. It was cold and impersonal.

Today, most Realtors presume that offers should arrive by email.  The better ones will ask: “How would you like to receive my offer?”  The openness to dropping off a sealed offer, present to the agent, present to the agent and seller, email, fax, or have delivered by courier pigeon – ok, kidding on the last one – indicates a willingness to go the extra mile and to get it done. (more…)

Change to the financing contingency paragraph in the PRDS contract

In Silicon Valley, there are two real estate purchase agreements, and sets of forms, in use:  the PRDS and the CAR contracts and forms (Peninsula Regional Data Service and California Association of Realtors).  Both of these are updated periodically.  The PRDS contract’s latest revision was in June 2013, so a couple of days ago I attended a training session to go over the new form and to have the highlights pointed out.

To me, one of the most striking changes is found in paragraph 2I on page one of the contract.  Have a look – one of the changes is highlighted in yellow so that it stands out:

PRDS financing contingency changes

In the past, the value and condition of the property were part of separate contingencies, the appraisal and property condition contingencies.  Now, however, if the bank or lender won’t lend (or won’t lend the needed amount) based on either of these issues, the buyer is protected by the loan contingency. That’s huge!

What will be the impact of these modifications to the contract?  In a balanced market, where buyers have their normal contingencies, I suspect there’d be no change at all.  In an overheated seller’s market, though, we may see some listing agents demanding that all offers come in on the CAR form instead, as that purchase agreement does not have such a clause as this.

If it’s in the real estate contract, your lender will ask for it

Home Sweet HomeBuying 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…)

What is a “Kick Out” Clause?

What is a kick out clause?A kick out clause refers to language in the contract which permits the seller, in some cases, to cancel the contract with the current buyer.  The current buyer is “kicked out” of contract.  Another expression for the same idea is a “release clause” – the seller can release the buyer under some situations.

This is a bit of a surprise to most Silicon Valley home buyers, who tend to think that they can walk away from a property during their contingency time frames, but a seller is stuck with them, no matter what.  That’s simply not true!

In the last few years, both the CAR and PRDS contract forms have been updated.  Both now include language that specifies the seller’s right to cancel the contract.  Both parties have rights and responsibilities. Failing to do what one has promised to do in the purchase agreement could potentially find that home buyer out of contract and without that home to buy.  There are many shades of gray, and few things are automatic.  If a seller is going to give a buyer the boot, there will be a “notice to perform” tendered first.

Let’s talk specifics.  When can the seller kick out or release the buyer? (more…)

What repairs must be done when selling my home if we used the PRDS contract?

The PRDS or Peninsula Regional Data Service residential real estate contract is in wide use on the San Francisco Peninsula and parts of Silicon Valley and the “South Bay” along the west side, beginning at  San Jose’s Almaden Valley and going north west along the coastal hills through Los Gatos, Monte Sereno, Saratoga, Cupertino & west San Jose, Sunnyvale, Los Altos, Los Altos Hills, Palo Alto and on into San Mateo County.  Nearby areas such as Campbell and the Cambrian district of San Jose may use it too.

Why does it matter so much for home sellers which purchase agreement form is used?  There’s a world of difference between the “AS IS” content of the CAR contract and the “Seller’s Obligation to Repair or Correct” element of the PRDS.  Today let’s just focus on the one aspect of the seller’s repair obligations.  (For broader info, please see the link at the bottom of this article.)

The singularly most distinct feature of the PRDS contract is that unless the As Is box is checked, it obligates the seller to make sure that the property is in a certain condition by close of escrow.

What the PRDS contract requires of home sellers:

19. SELLER’S OBLIGATION TO REPAIR OR CORRECT: Unless this Contract includes the “AS IS” provision in Paragraph 17, Seller shall make repairs or corrections as set forth in this paragraph. Seller’s repair or correction obligations shall be limited to deficiencies known by Seller or discovered before Close of Escrow. Disclosure of defects and deficiencies made by Seller in the Disclosure Documents or elsewhere do not relieve Seller of any agreed-upon or statutorily required repair obligations.

The first part of paragraph 19 spells out a number of things, including that the sellers are limited to the items here (and of course the pest work in paragraph 18 unless it’s excluded plus whatever is mandated by the state).  The house does not have to be perfect.  What IS covered?  Keep reading for the list:

Seller shall Deliver the Property at Close of Escrow in the following condition (subject to any Risk of Loss as specified in Paragraph 25J): (1) Roof/skylights (not including gutters) shall be free of leaks; (2) Built-in appliances, plumbing, heating, air conditioning, electrical, solar, landscaping sprinklers, sewer/septic, and pool/spa systems, if any, shall be Operable (“Operable” shall mean that the appliance or system meets its basic intended function but may not operate as if new or may not satisfy current building codes); (3) Plumbing systems, shower pans, and shower enclosures shall be free of leaks; (4) Chimneys and fireplaces, including dampers, shall be operative and free of structural defects; (5) All broken or cracked glass (excluding seal-failure of multi-paned windows/skylights) shall be replaced by Seller.

How do we determine what needs repairs or not?  Usually it’s by having inspections.  Most sellers today will have pre-sale inspections.  But if they do not, when the property is in escrow and buyers order their inspections, the sellers will have to do the work as outlined above (plus any pest or termite related work, and that’s covered in paragraph 18).  Let’s look at these one by one. (more…)

If my real estate purchase offer is accepted, when will they cash my check?

Silicon Valley home buyers want to understand time frames, expectations and requirements when signing a purchase offer on real estate.  One of the most important to fully grasp is when the initial deposit check will go to escrow and be cashed.

The quick answer to the question about when the Silicon Valley real estate purchase offer check will be cashed:

Your initial deposit check or good faith deposit check (or wire transfer or other means of conveyance) is due within 3 business days of acceptance (also called “contract formation”) unless the contract is changed by checking the box and filling in the blank for a different answer.  By the way, everywhere else in the contract, time is measured by “days”, not “business days”. This is the one exception! (more…)