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Backup Homebuyers

13 Friday May 2016

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Wanna be a backup?  It’s a common question among Realtors these days.  So what are we talking about?  We have a shortage of inventory right now – not enough homes to sell for the buyers who are out there.  That means that there are often multiple offers when a hot property goes on the market.  It can be tough on the average homebuyer.  Say you have a loan, but one of the OTHER offers is all cash.  All other things being equal, cash is king and tough to beat.  Now, there are other ways to win in a multiple offer situation; perhaps money is not the only thing important to the seller.  The thing to do is to have your agent quiz the seller’s agent about what other terms would make the seller happy.  Perhaps they need a quick close – or perhaps they haven’t found a home to move to yet and need a longer close.  Maybe they need to “rent back” for some period of time.

In other instances, perhaps what is important to the Seller is bringing a great neighbor to a neighborhood they’ve known and loved.  In that instance, a letter from the buyer can make all the difference.  In fact, I recently had a client, a single mom looking for her first home purchase all on her own.  She fell in love with the “perfect” house and wrote a letter to the seller detailing all the reasons that she loved the home.  There were seven total offers on the house, and after we won the bid the listing agent told me that there were two other offers that were stronger and higher in price than ours was, but that the LETTER made the difference.  The letter touched the seller and convinced the seller that my buyer was the best buyer for the house.

But say you’ve tried the multiple offer strategies and you still lose out to another offer.  Perhaps the price went way over list and you offered less.   Maybe another buyer took out the appraisal contingency and you weren’t willing to that.  But you still loved the house.

THIS is where the backup offer comes in.   When another buyer wins the property you want, you can offer to “be the backup.” What that means is that you make an offer to the seller that if the first contract falls through, you are waiting in the wings and fall into the first position without the property ever coming back onto the market.  The backup offer, of course, has no legal effect until the seller signs it – at that point, it becomes the backup contract and is basically a right of first refusal for the backup buyer.

How it works is this – if the first contract falls through, the backup comes into effect when the seller notifies the second buyer that the first contract has fallen through.

So what’s in it for the seller?  Well, if a property comes BACK on the market after being under contract, others wonder “what’s wrong with it?”  There’s a certain stigma attached to a property that’s been under contract and that contract is terminated.  This is why you will see an agent write into such a listing something like “BUYER’S FINANCING FELL THROUGH” – the idea is to signal to future buyers that the contract termination has nothing to do with anything wrong with the house.  With a backup offer, the seller doesn’t have to risk any stigma attached to coming back ON the market.

For the buyer, of course, it’s a risk free proposition if there’s a due diligence period in the contract.  Most contracts in Georgia have a seven to ten day due diligence period during which the buyer can terminate for any reason or no reason at all.  So submitting such an offer as a backup is risk free.  Even if the contract becomes primary, the buyer can decide to terminate and get earnest money returned.

So how is it effectuated?  There’s a backup agreement exhibit in the Georgia Forms that’s used.  With the exhibit, the seller can sign because they are *not* selling the same property to two different buyers – they are granting an option to the second buyer should the first contract fall through.

With the due diligence period, the second buyer is able to terminate at any time, even before the backup contract moves into first position.  Thus, the backup buyer can continue to shop for a home and if they find the perfect place, simply terminate the backup contract.

 

Mary Anne Walser is a licensed attorney and full-time REALTOR, serving buyers and sellers in all areas of Metro Atlanta. Her knowledge of residential real estate and her legal expertise allow her to offer great value to her clients. Mary Anne serves on the Committee that drafts and reviews the contracts utilized by all REALTORS in the State of Georgia. In addition, she is a member of the Atlanta Board of Realtors, the Georgia Association of Realtors, the State Bar of Georgia and the Georgia Association of Women Lawyers. Contact Mary Anne at 404-277-3527, or via email: maryannesellshomes@gmail.com.

2015 Contract Changes

11 Wednesday Feb 2015

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Changes to the 2015 Georgia Realtor Forms

Did you know that the real estate contracts used by most agents in Georgia change every year?  Sometimes there are big changes, sometimes small changes – but every year without fail there are changes.  So if you purchased a home five years ago, say, the process now is a bit different than it was then.  The biggest change in recent years was the change from an “inspection period” to a “due diligence” period.  With an inspection period, the buyer had to find a “material defect” in the property that the seller would not fix in order to get out of the contract.  As you might imagine, that resulted in a lot of legal wrangling over what constituted a “material defect”.  So the Georgia Association of Realtors forms committee changed the contracts so that the “norm” now is the due diligence period, also called a “free look” provision.  During that period (typically anywhere from 7 to 14 calendar days) the buyer can terminate for any reason or no reason at all and get their earnest money back.

This year the changes were not quite as sweeping as that recent change, but there are changes; if you are selling or buying a house this year, you’ll want to know about them.  In the basic purchase and sale provision, GAR added a “special circumstances” provision that alerts the buyer that the seller must get third party approval before they are able to convey the property.  The categories of prior approval include: (1) approval by a bankruptcy court; (2) approval by a judge in a divorce proceeding; (3) approval by a lender in a short sale proceeding (when the sale of the property will not generate sufficient proceeds to pay all mortgages and liens against the property); and (4) other instances when the seller does not yet have title to the property, such as in an estate situation.

There are consumer brochures Realtors are encouraged to share with clients and which are mentioned in the Brokerage agreements, designed so that consumers are getting pertinent warning information.  If you are not provided them, you will want to ask for them: Protect Yourself When Selling a House, Protect Yourself When Buying a House, and Protect Yourself When Buying a Home to be Constructed.  There are brochures covering the hazards of lead based paint and of mold, and about purchasing a home in flood plain or a short sale or distressed property.  Finally, there are two new brochures: What to Consider When Buying a Home in a Condominium and What to Consider When Buying a Home in a Community with a HOA (homeowners’ association).

Bruce Jenner would be happy to know that in the various agreements that address potential discrimination, “gender identity” has been added to the list.  Previously, the “protected category” list consisted of race, color, religion, national origin, sex, familial status, disability, and sexual orientation.    What this means is that brokers, agents, and owners of properties are prohibited from discriminating against potential purchasers on the basis of any of these categories – which now include gender identity.

There are numerous other small changes.  One particularly interesting tidbit is that there is now “stated consideration” for the due diligence period.  In previous years, attorneys argued that the purchase and sale agreement’s due diligence provision did not create an enforceable contract because there was no consideration paid by the buyer for the privilege of holding the property under contract for a period of time with no obligation to buy.  The contract now states that the Buyer will pay the seller ten dollars for this “option” period.  In practice, the ten dollars NEVER CHANGES HANDS, but the recitation makes the provision enforceable.

You won’t be surprised that I recommend you consult a licensed Realtor (like myself) for a full explanation of the changes and intricacies in the GAR forms.  While I am of the opinion our state’s forms and contracts are some of the best and user friendly in the nation, you should always have expert professional advice in your home purchasing and selling decisions.

Mary Anne Walser is a licensed attorney and full-time REALTOR, serving buyers and sellers in all areas of Metro Atlanta. Her knowledge of residential real estate and her legal expertise allow her to offer great value to her clients. Mary Anne serves on the Committee that drafts and reviews the contracts utilized by all REALTORS in the State of Georgia. In addition, she is a member of the Atlanta Board of Realtors, the Georgia Association of Realtors, the State Bar of Georgia and the Georgia Association of Women Lawyers. Contact Mary Anne at 404-277-3527, or via email: maryannesellshomes@gmail.com.

LET’S GO TO COURT – OR NOT…

19 Monday Nov 2012

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Most new construction contracts contain an ARBITRATION PROVISION.  If you’re buying new construction, you’ll notice it because typically it requires a specific initialling at that particular paragraph.  Our resale contracts in Georgia do not contain such a provision.  So the question is raised – is a good idea or NOT to agree to arbitration in advance?  Here are some thoughts from a recent briefing with the law firm of Epstein Becker Green I attended –

First, what IS arbitration?  Often confused with mediation, which is less formal and not binding, arbitration CAN be legally binding.  This means if you choose binding arbitration you may be stuck with the outcome with no avenue of appeal.  There are only very limited bases for appeal of an arbitration provision; as they stated at the briefing, you would need something akin to having a picture of the other party handing a monetary bribe to the arbitrator in order to have a judicial appeal.

One party cannot force another to go to arbitration unless it is agreed upon in advance in writing – hence the provision in many new construction contracts.  So, say you’ve entered into an agreement with an enforceable arbitration provision and there is a dispute.  If you file a claim in court, the other party can legitimately ask the court to force you to arbitrate instead.  When you arbitrate, a private company is chosen to provide the arbitrator or arbitrators (typically there is one arbitrator or three – for obvious reasons, an even number of arbitrators would not make sense).  As a party to the arbitration, you will have the opportunity to strike arbitrators for cause.  You then proceed to a hearing.

WHY arbitrate?  Might you WANT an arbitration provision in your contract?  There are several advantages: typically it is less expensive than litigation, because it is faster.  It is also more certain, since there are only limited grounds for appeal.  On the con side, third parties aren’t bound by the arbitration agreement and cannot be forced to appear.  There are no rules of law or evidence in an arbitration proceeding other than those set by the parties or the arbitration company –thus, what often happens is that “if you can get it through the door, you can get it into evidence.”

As a practical matter, the arbitration provision in many new construction contracts is probably favorable for all concerned.  Filing a lawsuit is expensive.  But most do not add an arbitration provision to the standard Georgia Association of Realtor resale contracts.  Our standard practice in Georgia is to adhere to the form contracts without extensive rewriting of them; rewriting by an agent who is not a lawyer might be considered unauthorized practice of law.  Even if your Realtor IS a lawyer (there are a few of us out there) you will want to carefully consider whether or not adding such a provision makes sense.    Talk to your Realtor about it when you are entering into your agreement – it may or may not make sense for you.  And as always, never hesitate to call the Mary Anne Walser team if we can help in any way!

Notes on Negotiating

26 Thursday Apr 2012

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What does your Realtor do for you? Well, many things, but a lot of what we do is negotiate contracts – either on behalf of the buyer or of the seller in the purchase or sale of a home.  I have taught classes on negotiation skills.  Because I am also an attorney (a former litigator) I have a lot of experience negotiating deals.

But recently I took a class from a professional mediator about negotiating.  Jennifer Keaton owns One Mediation, a mediation firm based here inAtlanta, and she made some great points about negotiation that are well taken, a great reminder, and applicable to any type of negotiations, including real estate.

First, every contact with the other side conveys information – so pay attention to every contact.  Most importantly, you do not have to mean or rude to “win”.  After all, haven’t you heard that you get more flies with honey than with vinegar?  Particularly in real estate, often a more emotional negotiation, this is important.  Being professional and polite does not mean you cannot be tough and represent your client well.  In fact, make sure your agent is one who is respected and liked by other agents.  Agents want to work with other agents who “play fair”, and that will serve you well when coming to agreement.  Also, say you do not come to agreement on a given negotiation.  Timing matters – a seller may get more motivated, a buyer may find a greater source of funds – in other words, the deal may work, just not right now.  If you have kept a congenial relationship, the other side may just come back, offering more.

Another important point is that knowledge is power.  With information, your arguments actually hold weight – without the hard facts, you have no ground to stand on.  When an agent is representing a buyer, that agent should marshall the LOWEST comparables and be able to discuss them with intelligence to convince the seller, hopefully, to accept less than they would otherwise.  Similarly, an agent representing the seller shouldmarshallthe HIGHEST comparables available to help convince the buyer that they are getting a great deal (which every buyer wants and expects).

Also: be creative.  Every negotiation is not all about money.  What else can your client offer that is of value to the other side?  Perhaps a seller will take less for the home if you close quickly.  Or if they need more time, if you will close later.  Your agent needs to ask questions and pay attention to the nuances of the other side’s needs and wants; that can certainly help ease the parties to agreement.

Finally, stick to your plan and stay the course.  Do not walk away without offering your “walk away” offer.  But if you give a “take it or leave it walk away” offer, make sure that is exactly what it is.  If it is not, you lose credibility.

In this market, great negotiation skills mean more than ever.  Make sure your agent has them!