Andrew Wetzel's Musings

November 10, 2017

Anatomy of a Back-Up Offer

Filed under: Buying,Ethics,Multiple Offers,Selling — awetzel @ 6:02 PM

The following post is meant as a “teachable moment” not for bragging or embarrassing anyone.  I am an instructor of ABR (Accredited Buyer Representative) and SRS (Seller Representative Specialist) candidates and this situation demonstrates some of my core philosophies about Real Estate and how to best protect our clients.  Let me start with an overview:

  1. A Real Estate transaction, regardless of whom you represent, is a BUSINESS transaction. Whether you are representing a relative, a friend or someone you just met does NOT matter. You should work equally diligently and honestly for all, keeping in mind that it is business;
  2. In PA we work with a “fill in the blank” agreement of sale. A buyer’s agent needs to explain the entire contract to their buyer-client, ensure that they understand what they are proposing/ offering and explain how to best maximize the buyer’s chance for succeeding in acquiring a seller’s property. A purchase offer must make sense to a seller and both parties are expected to honor the specific terms to which they agree. In PA the contract says that the dates and times are the essence of the agreement and are binding;
  3. the ebb and flow of the agreement allows each side certain opportunities to perform their “due diligence” and to control what happens next. There are times where either party may be allowed to terminate the process without the other side’s approval. Hopefully the end result is a sale that benefits BOTH parties.

None of this is meant to provide legal advice so make no assumptions about a situation you are involved with now or going forward. Here is a general overview of what happened:

  • an agent inquired about a property I was marketing. They asked a few questions which, while appreciated, seemed a little odd. The agent seemed unsure of themself;
  • the agent called me again a day or two later asking the same questions with an addition or two. I suggested that they contact the local municipality to make sure they received the correct answer regarding a zoning/ use question;
  • a couple of days later I called the agent to see if their client had further interest and was told they had written an offer and were preparing to send it to their client;
  • another couple of days passed so I called again and was told that the agent had a signed purchase offer that they would be forwarding to me shortly. The agent specifically said they would call me after they sent it;
  • more time passed without a call or an offer. I wanted to follow up without compromising my seller by appearing over-anxious. Sad to admit but other agents have told me that they were preparing offers for other properties or that they were going to send me something but nothing developed so I am somewhat skeptical until I have something in hand to present to a seller. I called the agent again and was told that they had scanned and emailed me something two days prior as they had said they would. I asked why they had not called me but wanted to avoid any drama that might affect the process (they had no answer). The agent re-sent me the offer which had a day left before expiring;
  • I called my seller-client and verbally presented the offer to see how they wanted to respond. The offer had an unusual contingency that did not concern the seller and they agreed to sign it as-written although they agreed that we needed a clarification regarding what the buyer and agent were looking to accomplish with the contingency;
  • the seller came to my office and signed the contract the next day.  I scanned and emailed it to the buyer’s agent and then called them to make sure they received it. I asked about the contingency. They said their client wanted to survey the boundaries of the property which is fine but the buyer accepted one general contingency while waiving the specific one covering surveying the boundaries which I found curious. Either way, my seller client was unconcerned that the buyer had a 10-day period during which they could terminate the sale for any reason whatsoever;
  • day #5 arrived and passed.  This was the day the initial deposit was due. I called the buyer’s agent on day #6 and was told that they had a personal check despite the fact that the contract required a bank check or wired funds since there was less than 30 days left before settlement;
  • a couple of more days passed with no deposit check. I was advised that the buyer agent had requested wiring instructions and I presumed that that was for the payment of the funds due at settlement;
  • more time passed and, after communicating a few times throughout the day, the buyer agent offered that the buyer would be wiring both deposits, the second one not being due for a couple more days.  My seller client thought that was fine;
  • during the time since the initial deposit was due, I was contacted by an agent who said they had someone interested in buying the property. They asked me if there was anything they could do which stunned me as we had a fully-executed contract. I advised the agent that we would accept a back-up offer in the event that something happened. I asked them to put their client’s offer into writing and suggested a specific date for my seller client to approve it (I offered the day after the offer in-hand was supposed to settle). The agent agreed;
  • day #10 (the last day of the contingency) passed without my hearing anything further about the contingency or the initial deposit. My client and I spoke frequently and we were both losing faith in the original offer and waiting for the “back-up” to arrive. The seller agreed with a strategy I have used before:  I would send an email to the agent stating that the contingency had expired and asking for clarification regarding the status of the initial deposit check;
  • with the seller’s permission I called the second agent and advised them that we were in a situation where their offer would be welcome but that time was of the essence as the seller wanted to sell their property to someone;
  • I had another conversation with the first agent and what they told me essentially provided all my seller needed to know:  the first buyer was adament about doing a survey and would not provide any deposit money until they were certain of the property boundaries for fear of losing it if they decided to terminate the sale. In addition, whether it was due to the fact that almost two weeks had already passed or that something really came up with the buyer’s schedule, the agent told me that they needed to delay the agreed-up on settlement day. What a trifecta:  a late deposit, an expired contingency period and now a need to delay settlement!;
  • I received the back-up offer and called the seller to arrange a meeting. I presented them with the back-up offer and a form to terminate the first sale for failing to meet the terms of the agreement. To their credit, the seller admitted feeling uneasy and questioned the ethics of switching buyers. As I explained to him, the essence of the situation (and the reason for this post) is that the buyer made an offer they were not able or willing to honor and was apparently represented by an agent who, to say the least, was unable to get the sale done as agreed.

Of course no agent can control or dictate what their client does but this agent’s conduct/ performance contributed to our situation. He should have generated an addendum extending the due date for deposit and the contingency to avoid a “default”. Had that been done, delaying settlement would not have posed a problem for the seller. Unfortunately, in addition to whatever the buyer was thinking, the agent never demonstrated the ability to convince us that we were going to complete the sale so the seller made the “business” decision to terminate the first offer and switch to another. Had there been no “back-up” offer, who knows what would have happened.

As I always like to say, HIRE WISELY! In this case, it goes both ways. Perhaps the agent should have declined the opportunity to represent this buyer.

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September 22, 2017

The Internet and Real Estate: a Bridge OR a Wall?

The Internet provides information 24/7 and has caused “disintermediation“, meaning that it has placed itself directly between the consumer and the Real Estate professional.  We helped divert or even push the public towards the easy access provided by the Internet by using a tight fist to control the information.  There was a time when you had to call us to get what you wanted.  They call that the “gatekeeper” model.

Now that so much information is easily (and often, freely) obtained without needing to rush to hire an agent, our role has been delayed but not eliminated.  Unfortunately, what should be likened to a “bridge”, meaning it provides useful and timely information to a consumer not ready to engage a professional but nonetheless curious, has becomes a “wall“.  The information should “facilitate” the process of buying or selling Real Estate by preparing people to take action but there is far too much misinformation and it is too easy to diminish the role that a professional Realtor should play in such a major undertaking.  Frankly, many do not know what they do not know and they too often waste time that could have been put to better use even if that means finding out that they cannot get mortgage financing!  Information is king but there is more to the process than mere words and anecdotes.  There is no substitute for experience.

HIRE WISELY!

Please read my other posts at WhyAndrewWetzel.com and visit my web site AndrewWetzel.com

September 14, 2017

Want to Sell a House? Think baseball!

You may not have read my earlier, related post using an analogy about buying a house and baseball (https://andrewwetzel.wordpress.com/2017/09/12/want-to-buy-a-house-think-baseball/) so let me state my premise:  analogies are a great way to make complex topics seem simple. Selling and buying Real Estate are NOT “rocket science” but, unfortunately, too many underestimate what they think they know when making what is typically the largest financial decision of their life.

Why baseball? There is no time limit and it has four specific reference points. Let me explain. Home plate is where you start and, if you are successful, you will round the bases and return home. Home plate is the goal and you can get there two ways:  you can successfully navigate each base (one at a time!) or you can hit one out of the park. In this analogy the fielders are obstructions that can stop you in your tracks or delay your progress. The pitcher represents “life”, tossing you the ball which is the opportunity to sell (or buy). In order to succeed, you need to reach EACH base and satisfy some requirement to move forward. By the way, in this analogy, a HOME RUN means finding your own buyer or giving your house away so you do not need to do much else.

First base:  having made the decision (or, unfortunately, being forced) to sell, you need to make the public aware that your house (or property) is available. Reaching “first base” means that you have hired a professional agent to market your home. That task is so much easier today because of the Internet but do NOT let that invention delude you into thinking that you have the ability to sell your own house! As you should know, there is a wide variation in terms of qualifications and expertise between agents but even the newest agent has hours of training and ample resources that a typical member of public does not. In addition, selling is one thing (it is largely based on price and value) while getting to settlement is where we earn our fee. So, your house is “on the market”, presumably you have a “For Sale” sign in place, your property information is in the MLS and being shared on countless web sites and you are waiting for people to line up to throw their hard-earned dollars your way. If only it were that easy!

Second base:  showing have started which, at the very least, suggests that people know your house is available and they are curious. If you are not getting showings you need to review your plan:  is your asking price competitive with your local market as far as location, features and condition? How is the “marketing”? You can spend countless hours and endless resources on this topic but it really boils down to two things: can agents find your property listing in their MLS searches and can prospective buyers find your listing in their online searches? If they cannot, you can reduce your asking price as far and as often as you wish but may have nothing to show for it if people do not know your house is on the market. Call me and I will share specific examples! Even if you are getting showings, you probably have no way of knowing whether the buyers are “qualified” let alone serious and you most likely have no idea who the agents are that are using your keys to walk through your castle. Showing your house is not fun and can be very inconvenient but it is necessary so most sellers prefer not to linger too long at this phase. To advance, you need to get offers to negotiate.

Third base:  congratulations! You have an executed agreement of sale. This means that you and a prospective buyer have agreed in writing to a specific price and to specific terms and conditions including inspections and a settlement/ closing date. The seller and buyer, with ample support and direction from their agents, have specific tasks to accomplish. Some are universal while others may depend on local practice. Either way, you both need to see to it that a composite list of items are completed before or, in some cases, at closing.

Home“:  hopefully both parties are satisfied and remain committed to the process, looking forward to the next phase of their lives without hesitation. This assumes that they worked out any inspection issues, that the buyer got their financing or has the cash to buy and that the seller is able to provide “clear title” (including removing any liens/ debt from the property). The process concludes with the ceremonial passing of the keys and the issuing of any funds due.

There will be times when the parties need to interact after settlement and those interactions can be unpleasant. The process leading up to and whatever happens after settlement often involve opportunities for disagreement and doubt, even in the smoothest sales. How they are managed depends on preparation and effort. You will get to re-evaluate the process from time to time so it is important to …

HIRE WISELY!

Please read my other posts at WhyAndrewWetzel.com and visit my web site AndrewWetzel.com

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