5 things your Silicon Valley buyer’s agent can do to help improve the odds that your offer will be accepted

5 things your buyers agent can doHome buyers in Silicon Valley are getting frustrated, discouraged and disheartened as they write offer after offer, only to lose out in multiple bid situations. It’s not just the poor small down payment home buyer either – this is happening to those with 20% down and more too.

What can be done to improve the odds of success?

Usually losing out is a simple case of the best price and terms winning out.  (I wrote a series of articles on how to compete in multiple offers that you can find here.)  At times, though, there’s a bit more nuance, especially if there are two or more bids which are “neck and neck” or nearly tied.  Sometimes the buyer’s agent either does or doesn’t do certain things which can impact how your real estate purchase offer is viewed by the listing agent and seller(s).  Here are 5 important things that the buyer’s Realtor or sales person can do which will help the odds of success:

    1. The agent should read the MLS printout carefully to see if there are any instructions regarding offers.  This one may seem obvious. but too many buyer’s agents just draft the offer and send it in, ignoring information that will probably be useful (such as offer deadline, preferred form – CAR or PRDS contracts, availability of disclosures, the request to call before writing the contract etc.).  Ignoring clear instructions will usually result in creating bad feelings between the parties or their agents, and lessen the odds of success.
    2. The buyer’s agent should call or email the listing agent before writing the offer (and after reading the MLS!).  Sometimes there are requirements or just preferences that won’t be known unless contact is made.  Additionally, though, the listing agent will simply want to know about the level of interest and not have any surprises – it’s a courtesy call.  If the relationship between real estate agents is improved, so are the odds of success.
    3. The agent should ask if it is possible to present the offer in person… and be willing to do it, of course.  Many seller’s agents won’t want a live presentation (most would email), however the fact that your agent is willing to spend the time and make the effort to present in person usually speaks volumes about his or her professionalism. It’s also a hint that the agent is a cut above most.  In my real estate practice, several times I beat out other offers by asking if I could meet with the listing agent and sellers to discuss my clients’ offer, and then doing it.   (With my multiple offer situation yesterday, only 3 agents requested to present to me live.  One of them had the winning contract.  Of course, the rest of the package was also super strong – but this one step is a clue to the whole offer strength and commitment.)
      (more…)

What is a contingent offer?

What is a contingent offerContingent 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.

Most of the time, the buyers have the 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).  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.

To muddle things a bit, recently our local multiple listing service, MLSListings.com, recently eliminated the sale pending or under contract status that had been associated with either the contingency to sell another property (formerly “status 2”).  We used to have 3 types of pending sales – contingent (status 2), pending (status 3, normal contingencies in place) and sold but not yet closed (status 4, all contingencies are removed).  I don’t know why we now have just “contingent sale” and “pending sale”, but I think it was a terrible idea.

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:

  1. the home may not yet be on the market
  2. the house may be on the market but not yet under contract
  3. the property may be on the market and sale pending (under contract), but the buyers’ contingencies are still in place
  4. 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…)

What is a reverse offer?

A year or so ago, I attended a 2 day negotiation class in Los Gatos. It was quite good! At one point, we discussed negotiating offers in a buyer’s market and how challenging it can be to get showings and offers at all. The topic of a “reverse offer” came up next.

A reverse offer is when a home seller initiates negotiations with a buyer by drafting a purchase agreement. Yes, this is backwards!  The seller may not know the buyer’s ability to pay, what type of loan it could be, or even the prospective buyer’s name! The idea is that if buyers are on the fence, this may get the ball rolling. Only seldom does it result in an immediate agreement. More often, it’s either rejected outright or countered. Or perhaps the buyer and the buyer’s agent will draft a whole new contract. But it may be a useful strategy if a property is not selling and there seems to be interest from buyers who aren’t going to the next step of putting an offer in writing.

Related reading:

What is the difference between the CAR and PRDS purchase agreements? Does it matter which contract is used?

What is a sharp offer or relative bid?

What is a blind real estate offer?

Q & A on making an offer (on my popehandy.com website)

 

 

 

 

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.

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 is the difference between the CAR and PRDS purchase agreements? Does it matter which contract is used?

In most of California, the purchase agreement form used when writing an offer to buy residential real estate is the California Association of Realtors (CAR) form, the Residential Purchase Agreement (CAR-RPA).  Along the San Francisco Peninsula and in Silicon Valley, though, often we use another form, the Peninsula Regional Data Service purchase agreement (PRDS contract).  Few consumers know that there is a choice of forms to use when buying Silicon Valley real estate.  And too many real estate sales people do not understand the difference between them.

Does it matter which one you use?  It certainly does!

While anything in the boilerplate can be modified (deleted or added to), the basic text is not identical from one to the next, and neither are the ramifications to buyer and seller.  Here are a few examples:

Property condition: one is an “as is” contract and the other requires that the property be delivered with a warranty of condition (no leaks, no cracked glass, no structural defects in chimneys, all systems operational, etc.)

Repairs in escrow: one says that repairs must be by a licensed contractor, the other that repairs must be done in workmanlike manner (can be done by anyone)

Defaulting: one contract has more ”teeth” with buyer or seller defaults than the other

There are pros and cons to each of these two forms. A skilled agent is “bilingual” in both, understands the strengths and weaknesses of each one, and can modify as needed the form to benefit the client. What is tricky, even for Realtors who work with both sets of realty forms, is that they keep changing.  So there can be confusion on what is and isn’t covered, or the way in which various aspects of the contract are addressed.  Let’s look at some examples of why it matters which real estate contract you use in the San Jose area.

(more…)

How To Increase The Odds That Your Purchase Offer Will Be Rejected

Do you really want to buy a Silicon Valley home, or do you just want to write offers to see what will happen?  Some folks, who appear to resemble serious home buyers, write offers that are riddled with reasons why the seller should reject their offer, or at the very least write a very tough, high counter offer in response.

What kinds of things in a purchase contract make a bad impression on home sellers in the San Jose area?  Here’s  a list of things buyers (or their agents) have done I’ve seen recently which turned the tone negative when it didn’t have to be:

  • On the good faith deposit check, don’t write the name of the title company.
  • On the memo section of the check, write something vague or possibly nasty, such as “deposit for budget property”.
  • On the contract, don’t write the seller’s name anywhere. Instead, write “Owner of Record”. Sounds like a bank owns it, but no matter what, it indicates that you don’t care who owns it.
  • On the contract, omit the listing agent’s info in the agency confirmation and offer signature pages.
  • Make a low offer, and if you are countered up in price, counter back to your original price.
  • If the seller indicates that your offer is being reviewed favorably and that the seller is probably going to take it, ask the listing agent “is there any room still to negotiate?” and promptly cancel and submit a new offer which is 10% lower.
  • Write offers on more than one property at once – even though you can only purchase one.  (That’s called “acting in bad faith”, even if it is a short sale.)
  • Ask the seller to pay for everything, even items which are normally paid for by the buyer.
  • If the MLS says that something is omitted or excluded from the sale, don’t mention it in your contract.
  • If the MLS provides information on disclosures, inspections and reports, don’t bother looking at them before you write and submit your offer.

I’ve seen all of these just in the last couple of months.  Buyers and their Realtors need to remember that buying and selling houses, condos and homes in Santa Clara County (and everywhere else) is emotional as well as a business decision.  Being rude, inattentive, uncaring and generally not following instructions is not a good negotiation strategy!

The offer is the courting period.  If you are not polite and professional then, what will you be like in escrow?  Your offer is your first impression. If you want to buy real estate, make it a strongly good impression!