Real estate question

Factual Questions
21

The deposit, earnest money, will vary depending on the market. On a normal property it is in the range of 1 to 5 thousand no 5 to 10%.

Last year we put a property on the market. We asked for a $5000 earnest money deposit in our listing. The offer on the property came with only a $1000 deposit. We could have refused because the deposit was below the asking, but we were not getting any other offers. We were also selling the property as is. It was in Las Vegas and we live in San Jose. There had been some break in and damage to the empty units. WE ended up paying for exterior entrance repairs, the bank would not loan until the property could be secured. We had disclosed everything and nothing new was found during inspection. WE also disclosed that there was an inactive common maintenance agreement (CMA) with 6 other 4-plexes. The night before closing we got a call from our agent, the buyer wanted us to pay for the closing out the CMA. The last straw. I told our agent that we had disclosed CMA’s right from the start and we would not agree to that expense and if the buyer did not preform the next day the deal was off and I would not sign to have the deposit returned. And we would keep the property I would spend a few weeks on property making the necessary repairs. The buyer signed off the next day.

We also found out that banks are back out there making bad loans to buyers. The buyers down payment was only $5000 and the loan amount was $181,500. That is a 98% loan to value mortgage. With prices going back up and banks again making bad loans how much longer until another bank failure that we will bail them out of?

22

This is the big place where your understanding of the process falls down.

In my experience, you normally don’t just dicker back and forth verbally. It happens a bit to establish the ballpark price, but in the end that is all just talk. Maybe you do agree to a price verbally, or just get close. At some point a serious buyer will submit a signed purchase offer stating their proposed price, contingencies, a deadline for acceptance, etc., and may include a check for the earnest money (If not, then a commitment to put down the earnest money within 24 hours (or whatever) of acceptance of the contract).

The written purchase offer is the contract. It just requires the seller’s signature.

The seller then either accepts the contract by signing it, or amends it by writing in a different price or whatever other changes they feel necessary, and then returns that to the buyer, with the understanding that the buyer now needs to either accept the changes or make further changes.

At some point everyone agrees, they initial all the changes, and both parties have signed off on the contract.

The potential period during which there is verbal agreement on the price but no signed written contract is usually at most just a couple of hours. The agents will make sure of that, because they don’t want either party to have second thoughts once an agreement has been reached.

At this point, with a contract signed by both parties, the broker normally does not take down the “for sale” sign. Instead, they add a sign that states “Under Contract”.

From that point it can take a few weeks or a couple of months until the deal is finalized and you actually are free and clear of the property. During those weeks and months, all sorts of things can happen to derail the deal. The property is still fully yours and 100% your responsibility during this period.

23

However, in the United States, this contract will prevent a seller from backing out of the deal before closing solely because he or she has in the meantime gotten a better offer. In other words, no gazumphing.

24

Thanks all,

I appreciate all the info. I am glad I reworded my question, because I now have a much better understanding of the process.

I have never sold a house before, so my knowledge in this is weak. I have been thinking of moving, but I wanted to understand the process from the seller’s POV.

Is there any set length of time between closing and moving out/in? Or like everything else, is that negotiable?

Let’s say I sell my house, and closing day comes and everything is signed. Do I have 24 hours to vacate, or once the papers are signed I have to get out immediately? Or is this something I can negotiate with the buyer? (For example, if the buyer agrees to it, I could take two weeks to move out after closing? Or will I be required to be a “renter” and pay a fee to the buyer once closing occurs?)

Thanks

25

At the point of closing, it’s no longer your house. While everything is negotiable, if I’m the buyer you need to be out at the time the pen hits the paper. For insurance reasons alone, the only way you are staying in the house is as a renter.

26

You should be able to move in immediately after closing. Sometimes if something comes up and the previous owner can’t leave right away, you can work it out that they pay you rent for a month while they get everything together. But once the closing occurs, it’s the buyer’s house.

27

When the closing papers are signed, ownership is transferred, but yes you can if you need to first negotiate a delayed move-out date or rent-back or what ever.

28

I don’t see where anyone gave a quick explanation of the process but here’s how it went for me and how I think it usually goes:

Seller lists house on market.
Buyer likes house, makes a written offer. Depending on market and everything else, may be for more or less than the asking price. Normally there will be a deposit and earnest money amount in the contract.
Seller accepts or declines written offer, the two may go back and forth to settle price and conditions.

The written offer is a contract to sell the house, and it’s often a standard form for the state. Normally it includes conditions that must be met like time frame, must have good inspection results, financing must go through, title must be clear. It can also include special conditions, like the seller paying closing costs for the buyer. Once both parties sign the contract, they’ve agreed to sell the house, and it goes off of the market.

The contract includes two major dates; if the buyer backs out before the first one then the seller keeps the deposit and puts the house back on the market. (Normally you do any kind of inspections and tests before the first date). If the buyer chooses to back out after it, then the seller keeps the deposit and earnest money. If the sale goes through, the deposit and earnest money go back to the buyer.

In theory this would be the end of contract negotiation. In practice there are often mutually agreed changes, it’s especially common that the closing date has to be moved because some piece of paperwork wasn’t complete. Repairs are another point of condition; if an inspection turns up problems, then the buyer and seller have to come to an agreement about them, if they can’t then the buyer will normally back out and pay the deposit.

Until the closing date, either party can back out of the contract. The seller owns the house all the way up until the closing is done, and the buyer might back out or have an issue any time before that.

If you can’t temporarily handle two mortgages, it is risky to try to buy/sell at the same time. It’s pretty common where I am to have a sale contract for the new house that depends on selling the old house, which helps spread the risk a little bit.

Closing is when ownership transfers, you need to be out of the house before you go in to sign the documents. Anything in the house at closing is the property of the new owner unless you’ve made some other arrangement. It’s possible to rent the space after closing, but the agents I worked with told me that they had seen way too many problems with those arrangements and recommended that I wait for another offer if the buyer insisted.

29

In my experience, the negotiations happened between the real estate agents - for the buyer and seller. the reason is simple CYA - if the principals are talking, they may say something misleading which can lead to lawsuits. (“No, the basement does not leak.”) As professionals the agents - supposedly - cover all these questions in writing.

The offer is a contract. As others say, it’s an offer to buy. Both parties sign it, and it’s official: if the following conditions are met by date X, A will pay B $Y for the house. Good faith money is put down, often held in trust by the agent or lawyer. The contract defines what happens to the money in the event of one or other backing out, circumstances under which they can back out, etc.

The contract -offer to buy - is satisfied when the property is actually transferred, when the title is signed over and the money paid.

So backing out or demanding a different price is a dick move, and absent a condition that breaks the contract, this could get the welcher sued. Of course, it’s always possible to find an excuse - simply tell the bank “we don’t want the property, please deny our application.”

30

Backing out and renegotiating are both a completely normal part of the process, not ‘a dick move’ and not something that would get the ‘welcher’ sued. There are explicit conditions in the contract that allow the buyer to back out before closing at their discretion with only the loss of the deposit or earnest money (depending on date). Refusing to hand over the deposit or earnest money could get you sued, just like refusing to pay on any other contract, but there’s no sane lawsuit for ‘you followed the terms of our contract, but I think you’re a dick for not doing what I want.’

People get emotionally invested in their house and selling it, but what you’re doing is actually a business transaction, and you will generally do a LOT better if you treat it as such instead of having unrealistic expectations of how the process works. This is especially true since sellers often have weird beliefs about how good their house is - when I was hunting, I found a house that I liked, but the inspector saw that the HVAC was installed in a really worryingly strange way, and the homeowner insisted that it was perfectly fine and that I was being horribly unreasonable for wanting him to pay for rewiring it and disposal of the old unit (he had left the old heater in the attic when he replaced it). You could say that I was a dick for backing out of the sale, but I would say that he was a dick for trying to sell me a fire hazard.

31

Only if you had a financing contingency. Which today, in major cities in the US, you almost certainly don’t have.

It can actually be pretty hard to get out of the contract (for a buyer) if you didn’t have inspection or financing contingencies.

32

No, no no! In many states, renters have specific rights. If the buyer lets you stay as a renter, the buyer is going to find it hard to kick you out if you don’t want to go - at least in certain states.

In NJ the people we bought our house from were building a new one in town, and during those boom times it was delayed. We were in a month to month lease, so this was understood and okay with us. Our attorney fashioned a contract where they paid us exactly our expenses for the house - mortgage, taxes and insurance. They were willing to pay more if they stayed longer, as was possible and which did happen. If they increased they payment, then it would be a rental agreement which our attorney told us was a bad idea. Instead, at a certain date they paid a penalty for staying.

It was a good four or five months before we got into the house after closing. I don’t know if the agreement would have stood up in court, since it was all quite friendly. (A benefit of living in a small town.) But if you are a buyer, don’t agree to a rental situation even if you are willing to let the seller stay. Talk to your attorney.

I’ve bought three houses and sold two and almost none of the deals was normal.

33

As I said, not my experience. The seller can try to enforce the contract, but as I said the house, which I assume they are moving out of, is going to stay empty and keep draining money while the suit goes on. It is usually easy to sabotage a loan, so there goes the financing contingency.

34

I can’t tell if I agree with you or not. If you’re in a strong ‘seller’s market’, as a buyer you’re going basically need these three things to have your offer accepted:

[ul]
[li]Strong earnest money, probably at least 5%[/li][li]No financing contingency[/li][li]No inspection contingency[/li][/ul]

You might be able to miss on one of those, if your price is particularly strong. But generally, you’ll need those three things. That puts you in a real bind as a buyer. If you discover something after making your offer you don’t like. Too bad. You can walk away from the earnest money if you want, but sabotaging your loan won’t do you any good - you don’t have a financing contingency. Deciding that foundation crack is a deal-breaker won’t help - you don’t have an inspection contingency. Find out the neighbor is a drug addict who leaves his needles in your yard, mugs you every day, and has loud parties every night? Guess what? Too bad.

And we’re talking about cases where the buyer actually wants to walk away. If they just want to renegotiate some small point, they may be able to do it, if the seller judges it’s better to renegotiate than to take the earnest money and relist the house.

35

In a seller’s market, buyers that back out are not as big a problem.

At a certain point, the buyer has to commit. If possession date is Feb 1st, here it’s getting toward the end of December, I have to find a mover, a place to go, arrange for utilities to switch names, etc. A decent level of certainty is necessary. Ditto for the buyer; neither party can change their mind the day before the title swap.

IIRC usually a finance clause will say something like “financing within 30 days of this offer accepted” which means a month or more before closing, the finance will either be yea or nay. The clause may say something like “buyer pays for inspection” (or if it’s a buyer’s market, maybe the seller will - whoever really wants to make the deal). Yes, all these will have pull-out dates.

Sometimes someone will exploit ambiguities, or deliberately break the contract on the theory it would hurt more to sue than to agree to a worse price. That’s the “dick move”. You’ve spent two months getting all set to do the deal and suddenly the other party, in violation of the contract (or they snuck a easy out in the contract) reneges. However, any costs you incur as a result of the anticipated deal could be added to damages for the lawsuit, so the party breaking the deal has to be careful.

36

If the buyer backs out and does not “preform” the sell can sue. If he sues to try and force the buyer to preform then what you are saying would be the case. Then the seller is stuck with the property until the case is completed. But the seller would sue for failure to preform. The seller still holds the house clear and can sell it. But the seller will be able to keep the earnest deposit. And in some cases get a judgment against the buyer for damages.

37

When I sold my 1st house we listed the house with a 30 day move out time. The buyer’s offer only had a 15 day move out which we agreed to. And it took us 14 days to take possession of the new house and move out of the old house.

A few months after we were in our new house I got a call from their agent wanting us to pay rent for those 15 days. After a lengthy discussion I told their agent that the buyer signed the contract and we signed the contract and we were living by it.

38

I’m really surprised to hear that financial contingencies are regularly left out of written agreements. That seems like a huge risk to the buyer. What happens if you can’t get a loan? Is your liability limited to the earnest money? In these seller’s markets are buyers limited to people who have lots of cash and the insane? :slight_smile:

We bought our house this year in Bellevue, which I considered a seller’s market. But maybe not. We had a bunch of contingencies in the written agreement: the financial contingency (provided we made a good faith attempt to apply within five days), an inspection contingency, and even some sort of broad “we found something we don’t like” contingency that was in essence a get-out-of-jail free card. Each of these contingencies has their own expiry date, after which we could no longer use it to back out without losing our earnest money ($10,000). Maybe having an actual real estate lawyer helped.

In the end everything went smoothly and we had no reason to call on any contingency.

39

Me too. I bought a house here in Santa Barbara just over a year ago. I had contingencies for the loan and the inspection and would not have dreamed of skipping either.

The house I sold in Seattle was somewhat different as the market is on fire there. There was no inspection contingency from the buyer, but he did do an inspection in the two days between the open house and the day we looked at offers. I don’t think he had a loan contingency as he came with all cash.

40

You make sure you have your ducks in a row with your financer before you put in the offer. In our case, we were putting about 45% down, so we weren’t too concerned, but things can always snafu. Frankly, if that had happened, we would have asked to delay closing while we straightened everything out, and hoped the seller was game. Otherwise, yeah, we’d be out the earnest money. I don’t think the seller would be able to go after us for anything beyond that, but IANAL.

As for inspection, in a hot market, it’s generally standard for sellers to allow a pre-inspection (ie, before the offer) and for buyers to arrange for one.