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Real Estate Contract Essentials

Real Estate Contract Essentials

Last week I spoke about buyer protections in the DRE (Department of Real Estate) residential purchase contract. The DRE wants consumers to be protected and wants buyers to have time to properly check out a house as well as make sure they can get financed.     What about sellers? What protections do they have? First, they don’t have to list their home and they don’t have to accept an offer. If the offer comes in at full list price with a qualified buyer and the seller rejects the offer then commissions could be owed to the listing agent. If a seller signs a contract to purchase and the buyer performs then the seller is obligated to sell the home. If the sellers change their minds after accepting an offer their only recourse is to negotiate their way out, if the buyer is willing. What if the seller accepts an offer, the contract is delivered back to the buyer, and a few hours later a higher offer comes in? Tough luck. The sellers may possibly negotiate a first backup with the second buyer and hope the first buyer goes away. The seller may refuse to make any requested repairs and hope the buyer leaves as well, but if the buyer performs under the terms of the contract then the first buyer gets the house. What if the buyers do not remove their contingencies in 17 days? If the buyers do not remove contingencies on the 17th day the sellers may give them an extension. By doing nothing, the contingency period (due diligence) automatically extends. If the sellers deliver a...

California Real Estate Contracts Favor Buyers

Last week I spoke about the shortage of inventory in the Laguna Niguel housing market. This week I spoke with Realtor® friends in both Las Vegas and Phoenix. Both of these individuals expressed that the inventory was a fourth of what is was last year at this time and buyers are offering over asking price in many if not most cases. Orange County is not as bad but just the same buyers need to be familiar with buyer protections since they will be moving quickly. The DRE (Dept of Real Estate) wants buyers of 1-4 unit properties to be protected. They must first be aware of how agency works and then the standardized contract has built in protections for the buyer. This only changes when a Realtor or a bank asset manager amends the contract. (Email me for a blank contract, contract@jonronrealestate.com). In a hot market your first goal is to get the property. After losing several bids you will understand what I mean. The contract also has several “contingencies”. This means the completion of the sale is contingent upon clearing these hurdles. The first is financing. If you are buying from a new builder this might be your only contingency. Typically the buyer has 17 days to complete the appraisal and get loan approval – or at least feel comfortable there will be no problem getting the loan. The second is the physical inspection of the property. This should be done quickly so the buyer does not waste money on the appraisal and then discovers that the condition of the property is unacceptable. In the case of a...

Are Online Home Values Misleading?

Didn’t your mother tell you not to believe everything you read? Well this applies to some of the most popular algorithm home valuation websites. How so you say? Many of the popular sites like “Zillow” can be very misleading. Even according to their own publications they can be off by 20% a third of the time. Log on to Zillow and read their blog and you will see it is full of examples of valuations that are way off for many reasons. These sites often pull in “comps” from different but adjacent tracts of homes which grossly misrepresent a value either to the high or low side. Let me put in a plug for the “Local Realtor”. We know in many cases what the real story is behind many closed listings. In many cases the neighbors know the real story as well. For example, why does a 2100 sq. ft. home sell for more money than a home 400 sq. ft. larger on the same street. The valuation algorithm will not know that the larger home had multiple slab leaks and was a property that was uninhabitable. In other words it had to sell to a cash buyer at a substantial discount because no lender would loan on the property. Some short sales for instance sell at market value even though they are sold “as is” with no warranty. However some short sales sell at substantial discounts because the bank wants to unload it from inventory. While it is great to have so much free information on line, it can be confusing and lead to a buyer rejecting a...

Why I Will Encourage My Buyers to Buy THIS Year: Factor of 13

What is the Factor of Thirteen? Simply put, it is the home price which makes financial sense for real estate investors, and is arrived at by figuring what a home’s yearly rent will be and multiply by thirteen. In many communities of Laguna Niguel and South OC we have hit that price point. This is the reason prices will bottom out. Take into account the record-breaking low interest rates, and 2012 looks even rosier. Remember, a one percent rise in interest rates means you now qualify for a home whose price is 10% less. Buying while rates are unbelievably low means you can afford a nicer home. How can you resist? If you are a first-time home buyer right now, or even a standard 20% down buyer making offers, you have probably been beaten out more than once by cash buyers. Take heart, because cash buyers tend to get overconfident and think they will get a 10% to 50% discount. That is usually not true. Cash will beat out financing when all else is equal, however. Some Fannie Mae foreclosures have a fifteen-day moratorium against investors to give owner-occupied buyers an edge. Remember to count backward. What? Yes, if you want to buy this summer remember that the normal escrow is 30 to 45 days and the normal short sale is around 90 days, but can be two or three times that long. To buy in June you should be looking now. Even with the power of the internet you need a knowledgeable Realtor more than ever. Rich Dad Poor Dad says “use a...