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Wednesday, August 1, 2012

No Contingency Offers

I am sure you know that the market has shifted this Spring and there are often many offers on a property. Consequently, buyers are writing more aggressive offers with no or few contingencies. This article addresses some of the issue that may result. I hope you find this informative.


Amanda Contreras
Keller Williams Realty

Contingency-free offers are popping up in hot market niches where buyers will take the risk in order to compete in a market with tight inventory and plenty of demand. What should a seller consider before accepting an offer with no loan contingency, no appraisal contingency, and no inspection contingency?

An all-cash offer with no financing contingency is a good deal only if the buyers actually have liquid funds to close. Make sure you verify this as a condition of accepting the offer.

The temptation is strong to sign the contract and worry about the details later. However, what you don't want to have happen is a scenario like this: The buyers have their money in the stock market. The market drops and they end up with less cash than they need to close.

HOUSE HUNTING TIP: Savvy buyers who are in competition provide copies of bank statements, with account numbers blacked out, or a letter from a financial institution stating that the buyers have the liquid funds required to close, at the time they present their offer. If they don't, make sure the contract requires that this documentation be provided within a couple of days of acceptance. If you have to put the house back on the market due to lack of funds, it's better to do so sooner rather than later.

Sometimes buyers make all-cash offers but intend to get a mortgage to close the deal. This should be disclosed in the purchase contract even if the buyers don't include a financing contingency to protect themselves in case their loan is not approved.

There is a big difference between buyers who have and will pay cash, and will close quickly, and those who say they'll pay cash but need to go through formal lender approval before the transaction can close. Sellers who make plans based on the terms of the contract could find themselves in trouble if less-than-candid buyers can't close on time, or at all.

A seller in this case may be able to pursue a legal remedy for financial remuneration, but this would require an attorney's interpretation, and it would take time.

A similar problem can occur when buyers make an offer promising a large cash down payment, but change their mind at some point and decide to put less cash down, which requires a larger loan amount.

This can change the approval process significantly. The lender could require two appraisals rather than one if the loan amount is above a certain amount, like $1 million. The lender underwriting process is more rigorous. It will take more time and could delay closing.

A change to the financial terms of a home purchase contract, which is a bilateral contract, should be agreed to in writing by both buyer and seller. One party is not supposed to change the terms of a bilateral contract without the consent of the other party.

Offers with no inspection or appraisal contingencies, while appealing, can also be problematic. Unless the buyers have done preinspections, with the sellers' permission, give a second thought to accepting an offer without an inspection contingency.

Even if you had presale inspections done, if something significant had been overlooked, you could end up in a legal battle later. To protect yourself, counter the offer to include a short inspection contingency so that the buyers can't later say they bought the house under pressure and weren't given the opportunity to inspect the property.

THE CLOSING: Sellers should make sure that buyers who make an offer without an appraisal contingency are willing and able to put more cash down, if necessary, to make the deal work if the appraised value turns out to be less than the offer price.

Dian Hymer is a real estate broker with more than 30 years' experience and is a nationally syndicated real estate columnist and author.

Sunday, March 18, 2012

Is Buying a Bank Owned Property Really a Good Idea?

REO's or Bank Owned Properties are in abundance in Los Angeles and for that matter all over the nation right now, however is it really such a good idea to purchase a bank owned property?

They usually have very attractive price tags but buyer beware once you decide you want to put an offer in on that property the banks are playing hardball in their contracts.

Here are a few of the issues you may run into when purchasing a REO:

1. Buyer receives a lengthy complicated addendum of usually 8-30 pages that are often in contradiction to the offer.

2. Terms are often changed.

    a. Contingency periods are often reduced.
    b. Contingency removal is passive rather than active. Which means once you pass the contingency period timeframe you're 3% deposit could be at risk.
   c. Change of some costs- transfer taxes.
   d. May need to be reviewed by your attorney.
   e. You may end up being responsible for the costs of retrofitting, which traditionally the seller pays for, even if the contract says otherwise.

3. There are Fewer Disclosures Required.

   a. Since the seller, the bank, never lived in the property, there are a number of disclosures not required. In a standard sale and short sale the sellers have to provide the buyers with a lot of disclosures providing details about the past and current condition of the home and any work/renovations they may have done.

  b. This puts more responsibility on the buyer for inspecting. Which you should do regardless, however it's much more reassuring seeing all the details about the condition and or defects that the seller discloses as well.

4. It's usually priced lower making it a good deal which generally attracts multiple offers driving the price up. On top of that you'll most likely be competing with investors who are paying all cash which is hard to compete against if you have to get a loan for the purchase.

5. The listing agent and the bank often are non-responsive. Questions and documents take time and you will need to have patience.

6. For every day past the loan contingency time period agreed upon in the offer or counters they often will charge a per diem, which can get quite expensive.

7. They are usually sold "as is" without repairs or credits being made for problems that are found, and will often not pay for termite repairs or if they do agree it's just a small portion.

The long and the short of it is if you cannot accept the conditions of an REO transaction- RUN, don't walk away from them!

All my best,

Amanda Contreras
Realtor, SFR
Keller Williams Realty
c. 310.694.4819
DRE# 01739095


Wednesday, February 8, 2012

Purchasing a Short Sale Property

Here are some basic guidelines on what to expect when you want to purchase a Short Sale.

Once you write your offer you're agent will submit it to the sellers agent, (listing agent). At this point you're dealing with the seller not the bank. You'll be negotiating with the seller until you can come to an agreement in the price and or terms. Once that happens the listing agent will submit your offer to the bank.

Short Sale: A short sale is when the seller owes more on the property than what it's worth.

With your offer the bank will want to see a couple months worth of bank statements and pay check stubs, if you're self employed they'll want to see 2 years of your tax returns.

Be ready to wait, they are called short sales however generally you'll wait a long time, between 3-6 months for the bank to approve it, if they do. The only time this really isn't the case is if there was a approved buyer before you who got tired of waiting and walked away. If there's a lot of interest in the property you'll want to make sure your offer is as clean as possible. Below are a few suggestions:

1. Don't ask for the bank to pay for your closing costs.

2. Offer a reasonable price, one that you'll have a good chance of getting accepted. Have your agent do a CMA, (comparative market analysis), to establish what's a reasonable price. The bank will send out their own agents to perform a BPO, (brokers price opinion), to show them what the value is and an appraiser. They aren't in the dark as to the value themselves. It's wise to submit this along with your offer.

3. Upon acceptance by the seller you'll agree to put a 3% deposit into escrow. They will like to see that you're serious and will appreciate that you're putting some skin in the game.

4. Agree to pay for termite, HOA fees and maybe even some retrofitting. Banks usually won't agree to pay the first 2 items. They'll pay retrofit, however if it's between you and another buyer or buyers offering to pay this could put you over the top.

5. BE PATIENT! The banks are generally understaffed, under trained and swamped. Your agent should give you weekly update as to the status of your offer.

I hope that you found this helpful. If you're looking to buy, sell or invest please give me a call!

All my best,

Amanda Contreras
Keller Williams Realty
c. 310.694.4819
DRE# 01739095