February 29th, 2012 at 6:51 pm
Paragraph 3H of the Purchase Agreement sets forth much of the mechanics of the loan process. It provides a time frame for the buyer’s delivery of a prequalification letter and the removal of the loan contingency. As a result, while there are not many blank lines to fill out in this clause, there are certain things you can do to better represent your client. First, paragraph H(1), regarding the prequal letter, has a box you can check at the end which states, “letter attached.” In other words, you can satisfy the requirements of this clause at the time of your offer by attaching the letter to your RPA. I think that is a great idea for multiple reasons. First, it satisfies the buyer’s obligation and is one less thing they need to worry about. Additionally, however, it makes your offer better and distinguishes you from other buyers. After all, the seller doesn’t have to wait for your proof of qualification. They get it with your offer and can include that fact in their decision regarding which offer to accept.
Next, paragraph H(3) provides three separate options for removal of the loan contingency: (1) that it be removed in 17 days; (2) that it be removed in some other, specified number of days; or (3) that it remain in effect until the loan is funded. Of course, the interests addressed by these three options depend on the specifics of your transaction and the side of the deal you represent. For example, if you are the listing agent, in almost any instance, it is in the seller’s best interest to keep the loan contingency reasonable, but around the 17 days. Obviously, the seller does not want the buyer to have a cancellation right any longer than is necessary. So, when representing the seller, you need to review this clause and make sure the “open till funding” clause is not checked. If it is, be sure to counter it out. With regard to an offer requesting more than 17 days, your advice to the seller will depend on the circumstances. We know that in today’s market, most loans do not get approved in 17 days. So, a request for a 21 or 24 day loan contingency is not unreasonable. On the other hand, if your listing is popular, and there are multiple offers, you can insist on 17 days or less to protect your seller. Regardless, it is our job to advise our seller on the risks and benefits of each potential period and let them decide what they are willing to do.
If you represent the buyer, on the other hand, the concerns are much different. After all, no matter when a loan contingency is removed, the buyer’s deposit money is, to some extent, at risk. This is true because, until the loan funds and the deal closes, things can happen and the bank can pull its loan commitment. As a result, even if the buyer removes a loan contingency the day before the scheduled close of escrow, their deposit is not totally safe. Something could still go wrong.
With that in mind, how should we advise our buyer’s with regard to their offer? Of course, the answer to that question, as always, depends a lot on the specifics of your deal. For example, if you are in a multiple offer situation, you should not check the “open till funding” box. In that circumstance, you are trying to make the buyer’s offer as attractive as possible to the seller. As a result, you should advise the buyer of the risks involved in a short contingency period, but advise that they stick with a shorter period in order to make the offer more attractive. If you get your offer accepted, you have more control over when the contingency is actually removed and can more likely get the seller’s agreement on an extension.
If, on the other hand, you are the only offer on the property, then the calculation is somewhat different. Of course, from the buyer’s perspective, a contingency until funding is a good thing. As a result, all things being equal, a buyer’s agent should recommend checking the box. In most instances, if the listing agent catches the check mark, they will counter the clause out. If they do you have not lost anything. Further, in some cases the listing agent misses the check mark and your buyer gets their long contingency. So, in those situations checking the box works for your buyer. On the other hand, in some instances, “all things are not equal.” For example, some listing agents seem to be looking for a reason not to accept your offer. Perhaps they hope to have their own buyer. In such a case, you should again explain the risks to your buyer and recommend a shorter period. Similarly, if you are writing a really clean offer that you think has a good chance of being accepted as is, then you may recommend against checking the box since it significantly increases the likelihood of a counter offer. In short, this decision is not a simple one and depends on the circumstances of your deal. In any case, the decision is your buyer’s and it is our job to explain the risks and benefits of each course of action (to check the box or not) and let them decide how to proceed. If you are unsure on how to deal with this issue, contact your manager or the legal department. We will be happy to help.
February 23rd, 2012 at 6:50 pm
names. Specifically, the DRE has stated that an agent cannot use a team name that implies it is a separate entity or brokerage. For example, team names that like “John Doe Real Estate” or “The John Doe Group” are not permitted. Rather, you can use the last names of the team leaders or members, all the while identifying that the agents are with Prudential California Realty (“Smith and Smith,” etc.) In the past, enforcement of these rules has been sporadic, but we have been informed that this is about to change. Specifically, we are told that the DRE is forming a task force to enforce its team name rules. That task force will be driving neighborhoods and looking for signs that violate the rules. Each violation is subject to a $1,000 fine, meaning $1,000 for each sign or marketing piece. As a result, and as you can see, these violations can be very expensive. Further, if you are cited by the DRE, all existing marketing which uses the offending language will need to be discarded. This means signs, flyers, etc. Finally, all the branding you have done for that team name will have gone to waste, since you will not be able to use the name any longer. So please be aware of this new state of affairs, and consider very carefully how you want to respond. Perhaps an affirmative move to change your team name and make it compliant would be the smart thing to do at this point.
As always, please feel free to contact us with any questions you may have.
February 17th, 2012 at 6:49 pm
I received a call this week from a listing agent on a deal where the buyer had contracted to procure an FHA loan. The agent was upset because, weeks into the escrow she received an escrow amendment memorializing two FHA requirements that, in her view, changed the terms of the deal. Of course, her seller didn’t want to sign the amendment and she called me to find out if he had to. Unfortunately for our agent and her seller, the FHA requirements at issue were not unique. Rather, they are uniformly enforced whenever an FHA loan is used. As a result, by checking the FHA box in paragraph 3C(1), the buyer was impliedly telling us that these requirements were part of the deal and the seller was accepting them. So, I think that the amendment was already agreed to and her seller could not eliminate those changes by refusing to sign.
So, what were the terms that caused so much stress.? First, in an FHA deal, the seller must agree that the buyer will not be obligated to close and will not lose their deposit unless the property appraises at purchase price. In other words, regardless of what contingencies exist in the RPA, and whether they have been removed, the buyer does not have to close escrow if the property doesn’t appraise. The FHA gives the buyer a second appraisal contingency that lasts until closing.
Next, the FHA will not insure a loan unless any items or systems identified by them are repaired. Of course, the RPA specifically says that the seller doesn’t have to pay for those repairs. However, if they are not made, then the buyer has a right to get out of the deal. Further, unlike normal repairs, the buyer cannot waive them. The FHA will not insure the loan unless the identified items are fixed.
So, if you represent a seller who gets an FHA offer, make sure to explain these issues to her. By accepting that offer, your seller is accepting the express contingencies of the RPA, as well as these two required by FHA. By explaining them up front, at the time of the offer, you won’t have to worry about a problem later on. That, of course, is always the best way to proceed.
As always, please contact us with any questions you may have
February 15th, 2012 at 6:49 pm
I have spent a number of hours the past few days reviewing our open litigation with our attorneys. As we went through that process, one thing became abundantly clear: An inordinate number of our lawsuits arise from boundary line disputes. Those cases all involve some alleged statement by our agent regarding the boundaries of the subject property, all of which turned out to be false. These claims, of course, can be very expensive, depending on the property involved. In one of our cases, the plaintiffs allege that we told them a finished hillside, which provides the property with significant privacy, was theirs. In truth, the hill belongs to the neighbor and, given its size, the plaintiffs claim it is worth over 6 figures.
So, what does this mean to you? It means that you should NEVER make a representation regarding property lines if at all possible. As you know, fences and walls, which often appear to be on the boundaries, are often placed incorrectly. Further, when the seller tells you where the boundary lines are, they are often incorrect. So, say nothing. You are not a surveyor and making a representation can often get you in trouble. If you have to address the issue at all, make sure you provide a source. Then recommend that the buyer confirm the source’s statement with their surveyor. For example, if you can’t stay on the sidelines totally, the most you should say is something like the following: “The seller says the brick wall is on the boundary line but I have not confirmed it. If you want to be sure, you should have the property surveyed.” That way, the representation is the seller’s and you have told the buyer that you haven’t confirm what they said. You have also told the buyer what they can do to make sure the seller’s statement is correct. In other words, you have disclosed what you know and given the right advice, thereby protecting yourself from a misrepresentation claim. But remember, the preferred thing is to say nothing at all about boundary lines. Those statements can very easily come back to haunt you.
As always, please contact us with any questions you may have
February 2nd, 2012 at 6:48 pm
One of the most common complaints I hear from listing agents is about inspection or repair reports that they are convinced are bogus. Specifically, the seller and listing agent often believe that an inspection provided by the buyer is really an attempt to negotiate a reduction in the purchase price. As a result, the seller and listing agent often believe that the inspector looks for problems to identify, or to blow out of proportion, that don’t really exist. For example, in a call I received today, the listing agent received a report identifying close to $100,000 in repairs. According to the listing agent, the inspector who prepared the report never actually visited the property. Further, the vast majority of the listed repair costs were only needed “if” certain conditions exist. Of course, since he never visited the property, the inspector didn’t know “if” those conditions existed. To no one’s surprise, the seller refused to give money for these “repairs” and the deal was cancelled.
As a result, the question I got was whether this report needed to be sent to buyer no. 2. This is common, and normally includes the seller telling us that we cannot give the report to anyone since they are sure it was just a negotiating tool and not a real statement of the property’s condition. So, what should you do?
The first part of the answer is obvious and answer: Give the report to the buyer. We are not contractors or inspectors and should not be judging the work of others. They are theoretically experts in areas that are beyond our knowledge. That being said, there are some additional things we can do if we really believe that the report is not accurate. First, we can describe whatever facts about the report’s preparation that we think is appropriate. For example, in the story above, we should tell the new buyer that the person who prepared this report never visited the property and therefore could not know if the conditions upon which he bases the report actually exist. Obviously, those facts must give pause to anyone wanting to rely on that report.
Additionally, we often recommend that the seller hire their own inspector to prepare a report on the same system as is referenced by the report you object to. For example, if the report you object to relates to the property’s roof, then bring in another roofer and have him prepare a second report. When you do that, you give both documents to the buyer so she sees both the old buyer’s position, as well as the seller’s. In that case, as it should be in all our deals, the buyer has all the information available and can make her own decision.
So, if you get a bad report, don’t let it cause you to do the wrong thing. No matter how much you doubt it, give the report to a new buyer. But also give him the other side of the story. Get another report, from a legitimate inspector, and pass that on too. That way, you have done your job, and the buyer can make their own decision based on all the facts in our possession. Such a decision will be theirs alone, and therefore not our responsibility.
As always, please contact us with any questions you may have.
