Wednesday, November 30, 2016

Technical Talk: Dealing with Offers Contingent on the Sale of Other Property

Oh the thrill of checking your email to find an offer for your listing! Only to find that it has a Contingency for the Sale of Other Property... 

While this isn’t ideal you can help your client (or perhaps yourself!) make good choices by being familiar with how this contingency works and your options going forward. 

First of all, do you accept?

Here are a few items I like to consider:

  1. Is the other property on the market? If it’s not even listed yet I might be hesitant to accept.
  2. If listed, is it priced appropriately to get an offer asap? If not, I might discuss with buyer’s agent to find out if they are open to dropping price on the listing.
  3. Is the other property under contract? Past Option Period? This is ideal and the safest bet when accepting this contingency. 

Once a contingency offer is accepted you should change the MLS listing to ACTIVE-CONTINGENT. This will alert other buyer’s agents that you have accepted a contingency offer and let them know there is still possibility for a back up to be accepted. The drawback is that some agents will not show AC properties because the property is already under contract and they don’t want to mess with submitting a back-up.   I would expect a listing with this designation to show less than an active listing. 

However, let’s say that you DO get another offer on the property. How exactly does this work? This is one of the most frequent questions I get so let’s take a closer look at Sections B & C of the TAR-1908/TREC 10-6 Form ADDENDUM FOR SALE OF OTHER PROPERTY BY BUYER.

SECTION B: If Seller accepts a written offer to sell the Property, Seller shall notify Buyer (1) of such acceptance AND (2) that Seller requires Buyer to waive the Contingency. Buyer must waive the Contingency on or before the _______ day after Seller’s notice to Buyer; otherwise, the contract will terminate automatically and the earnest money will be refunded to Buyer. 

Now, let’s break it down further so we know exactly how to proceed and cover all the necessary contractual items. 

If Seller accepts a written offer to sell the Property If another offer is received and your seller wishes to accept the other offer they must go ahead and accept/execute the other offer including TAR 1909/TREC 11-7 Addendum for “Back Up” Contract. 

Seller shall notify Buyer (1) of such acceptance AND (2) that Seller requires Buyer to waive the Contingency. To accomplish this, as listing agent, you will need to give notice to the buyer of the original offer by delivering TAR-1912 NOTICES REGARDING CONTINGENCY UNDER ADDENDUM FOR SALE OF OTHER PROPERTY BY BUYER. 

Buyer must waive the Contingency on or before the _______ day after Seller’s notice to Buyer. The buyer now has the option to allow the contract to terminate OR they can waive the contingency within the allotted days. As a listing agent, I would encourage you to have made sure this is a few days as possible when accepting the contract initially. You don’t want things to be in limbo for 2 weeks! I would say 2-3 days would be an appropriate time frame. So, if the contract says 3 days and you give the notice on Monday then the buyer has until the end of the day on Thursday to waive the contingency. 

otherwise, the contract will terminate automatically and the earnest money will be refunded to Buyer. If buyer allows the contract to terminate by not waiving the contingency you should prepare a Release of Earnest Money with earnest money being returned to buyer. Listing agent should then prepare an amendment for the Back Up Contract amending the effective date of the contract to reflect the date notice given to the back-up buyer that the first contract terminated. 

Of course, the original buyer also has the option of waiving the contingency and that is addressed in Section C of the Addendum For Sale of Other Property:

SECTION C: Buyer may waive the Contingency only by notifying Seller of the waive and depositing $_______ with escrow agent as additional earnest money. All notices must be in writing and effective when delivered in accordance with the contract. 

As listing agent, when negotiating the original offer, it is recommended to make the additional earnest money an amount significant enough to make it painful if the buyers are not able to perform.  By waiving the contingency, they are remaining under contract and risking their earnest money if they ultimately can’t sell the other property and close on your listing.  You do not want your property tied up under contract with little risk to the buyer for not performing…especially since you had a Back Up ready to go!

If the contract with the contingency stays in place you will need to prepare your seller’s for possible delays in closing since there are now many more moving parts to the transaction…the buyer’s buyer may be getting a loan which could get delayed, delaying your buyer’s ability to close. However, accepting an offer contingent on the sale of another property does allow the seller some flexibility in accepting a back-up offer and may be necessary in softer market. 

If you have any questions, ask your broker! 

Tuesday, November 1, 2016

Technical Talk: Listing Agent & Unrepresented Buyers

One of the advantages of being an investor with a real estate license is the ability to list our own properties. This give us the opportunity for significant savings on the listing side but what about when a buyer is unrepresented… the savings can get even more substantial! But, in these cases, even more diligence is required due to the increased risks. It’s important in these cases that we follow certain procedures to protect yourself!

First, as a reminder, even when there is a buyer’s agent you must do the following to ensure that the transaction will be covered under your Errors & Omissions insurance when you are listing a property you own:

1.  Seller/Agent must disclose, in writing, their status as a licensed real estate agent. You should put this disclosure on the MLS listing in agent remarks AND in Section 4 of the TREC 1-4 Resale Contract.

2.  Seller/Agent must suggest a home inspection be done or have inspection waived. I require the use of HUD Form 92564 “For Your Protection: Get a Home Inspection” when a buyer waives their inspection.  Have the buyer sign the form and upload to the MojoVest file.  

3.  State or local-board approved sales contracts should be used.  Always use promulgated forms! If you are unable to find a form for a particular use, please reach out to your broker for advice.  

4.  A Seller’s Disclosure is provided to the buyer PRIOR to closing.  Even if you never lived in the house you need to provide the disclosure and get it signed by buyer!

Now that we’ve reviewed what you should ALWAYS do when listing a property that you own let’s take it a step further and discuss how to handle an unrepresented buyer that approaches you about your listing.

Let’s assume Bob Buyer calls you from your For Sale sign and asks you to see the property. When asked if he is working with an agent he says no. Here is a sample of how to respond:

“Thank you so much, Bob, for reaching out to me about this property. You should know that as well as being the listing agent for this property I am also the owner.  As such, I cannot represent you on the purchase of this home but you do have some choices. You can choose to work with a Realtor to represent your interest as your buyer’s agent. I’d be happy to make a referral if you would like to work with an agent. You can also choose to be unrepresented. In this case, I can assist you in making an offer. You should understand that in that case it is my duty to treat you honestly and fairly but I cannot advise you or negotiate for you on your behalf. I am going to send you a document, Information About Brokerage Services, that explains how agency works in Texas. Please read it over, initial and sign your acknowledgement and return to me.”
Bob can respond in several ways:

1)    He can find an outside agent to represent him.

2)    He can ask for a referral to another agent. You may refer him to a fellow StepStone agent but you should both understand that the StepStone agent owes their fiduciary duty to the buyer now and you should expect them to give the buyer their highest level of fiduciary duty.  In this scenario, you will need to have an Intermediary Notice completed and kept in the files.

You may negotiate the buyer’s agent commission agreement with the agent you are referring the buyer to if you would like. Theoretically it would be a pretty easy transaction since you brought them a warm buyer with a property already picked out. Furthermore, you can request a referral fee or request that the buyer be referred back to you should they decide not to offer on your listing.

3)    He indicates he would rather go unrepresented. In this case, you will want to make sure you do the following:
a.    Make sure you have a signed IABS in your file
b.    Keep a copy of your correspondence that shows you explained to Bob his right to have an agent and your disclosure that you are the owner of the property (if you have this discussion via phone call I would follow up with an email so you have a paper trail).
c.     In special provisions on the sale’s contract include the following verbiage, “Listing agent is the owner of the property and does not represent buyer. Buyer has been advised of his right to representation and has elected not to be represented by a buyer’s agent”.

Now, let’s get even a little stickier….

Bob Buyer says, “That’s great, Angie. Thanks for the info. If I decide not to get a buyer’s agent can I get a better price since you don’t have to pay a buyer’s agent commission?”

Why is this so sticky? You don’t want to give the impression that you are encouraging or offering special benefits to a buyer in exchange for going unrepresented. Here is a sample of how you can respond:

Angie responds, “Well, Bob, I certainly wouldn’t want to do or say anything to discourage you from getting a buyer’s agent if you feel that is the right choice for you. I am prepared to pay a commission to a buyer’s agent so if you want to be represented you certainly should work with an agent. That said, as the seller, it is true that I would take into consideration all terms and closing costs associated with all offers received.”

Anytime you are acting as both the listing agent and the seller you should take extra care to make any and all disclosures and keep a paper trail of the disclosures.  We can do all the risk reduction we want but ultimately if a buyer is unhappy they can decide to attempt a suit against us. If this happens, having good disclosure and record keeping habits will make it a lot less painful!

StepStone is a home of Investor Agents that uphold a high level of honesty and integrity in their dealings with other agents, customers, clients, investors and sellers. We must always practice extra care that our actions and our paperwork reflects this value.