Tag Archives: due diligence

Buyer’s Remorse

09 Tuesday Jun 2015

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First Home Blues Five Tips to Prevent Buyers Remorse First Home Blues: Five Tips to Prevent Buyers Remorse

We don’t talk about it a lot, but it is real: buyer’s remorse.  That sinking feeling that you rushed too quickly into your home purchase and that it is all a big mistake.  If remorse comes during the due diligence period (during which the buyer can terminate for any reason or no reason at all), you can still terminate your contract; if it comes after that period, you cannot terminate without facing potential legal penalty.

Buyer’s remorse is not just a problem for buyers – it’s a HUGE problem for a seller.  If a home is on the market, goes under contract, and then comes BACK on the market, there is a stigma attached to the property, whether or not the contract termination was called for by any logical reason.  This stigmatizing effect is why sellers want to be as certain as possible that the buyer is NOT likely to back out.  For instance, many sellers would never accept an offer from a buyer who has not yet seen the property.  Why, you ask, would any buyer MAKE an offer without seeing the house?  Well, in these days of low inventory and few houses to choose from, buyers sometimes HAVE to make an offer without seeing it.  I recently helped buyers moving back to Atlanta from Sweden; with their three children, they didn’t want to move into a rental only to then move again when they purchased a home.  They had lived in Atlanta previously, and knew the area in which they wanted to live – so they trusted me, working with their parents, to decide on a home and get it under contract for them.  Whether or not they’ll have remorse is yet to be determined.

But buyer’s remorse may be more rampant in these times of buyers rushing into purchases because there is such low inventory.  The first advice I give is to remember that almost EVERY buyer has remorse at some stage of the process.  Despite my vast experience with the phenomenon, I myself had buyer’s remorse with the purchase of my current home.  I went through with the sale – at the urging of my husband – and it’s the absolute best home for us that I could ever find or ever imagine.  So working THROUGH the buyer’s remorse and soldiering onward to closing is sometimes the answer.

And I also suggest to buyers feeling a bit of remorse that we examine if the remorse is illusory and fleeting or based on fact and true potential pitfalls.  For that, we take the buyer’s initial wants and needs list.  Does the home they chose fit what they said they were looking for?  Is there likely to be another home in their price range that would fit those needs and wants better?  Looking at the inspection – are there problems with the home that are not fixable, or has the buyer just been spooked by routine home repair items that aren’t a big deal?

There are several scenarios where buyer’s remorse seems to fester that usually IS fleeting and should be worked through: when the negotiations with the seller have been contentious and the buyer is left not having good feelings about the seller; when the buyer keeps looking at homes online and considering other homes; and when family and co-workers plant doubt.  Remember that the seller is LEAVING the home and it will be yours; remember from our search that homes can be and usually are much different in person than they are online; and remember that the family and co-workers did not engage in the search with you and don’t know all that went into the decision (it’s typically more realistic to consult with friends who have been with you through the process).

With a careful selection process, a great inspector and a great real estate agent guiding your way, any buyer’s remorse may be a typical and passing phenomenon.  Sometimes knowing that it’s common is all a buyer needs to know to get through it.  For the seller faced with a terminating buyer, it is a good practice to let future purchasers know if the termination was based on “cold feet” rather than a true problem with the house.  Always let us know your current thoughts and concerns – armed with all information, buyers can avoid remorse, and sellers avoid a lost buyer.

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.

DO YOU WANT CONTRACTORS OR CASH? – A look at money in lieu of repairs

03 Friday Aug 2012

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During the due diligence period, the buyer does an inspection and asks for repairs.  The seller may prefer to give money, and not want to actually do the repairs because (1) they fear that the buyer will not be happy with the repairs and will ask the seller to redo them; (2) they may not have sufficient time to schedule repairs, pack, and move; (3) they simply do not want to have to take the time and effort to have them done.

The buyer may also prefer that the seller give money in lieu of repairs because (1) the buyer can oversee the repairs and be sure that they are to the buyer’s liking; (2) the buyer may want to do other modifications related to the trade at the same time and the money can simply go towards the larger bill; (3) the buyer may find it worthwhile to postpone the repair and use the money now.

In the instance where both sides agree to money in lieu of repairs, the buyer has several choices: he/she can reduce the purchase price by the agreed-upon amount, or have that amount added to seller-paid closing costs. Previously, we could have checks written at closing to third party vendors for the repairs to be performed later, but with the tightened mortgage restrictions that is generally not possible.  Which is preferable – reducing the sales price or increasing the closing costs?  Here are the pros and cons:

  • Either way, the buyer brings less cash to closing.
  • The lender typically will limit the amount of closing costs the seller can pay on behalf of the buyer.  For most loans, it’s three percent of the purchase price.  So just be sure that if you’re increasing the closing costs paid by the seller, you’re not running afoul of this limit.
  • If you decrease the purchase price, the purchase price is reflected in the tax records and future buyers will see that you paid less for the place. The plus side is that the tax commissioner also looks at the purchase price in determining taxable value, so a lower purchase price may result in a lower      property tax burden.

Either way, be sure your lender knows of the change in the contract.  Any changes – particularly those that change the purchase price of the property – must go through underwriting and you want to be sure there is plenty of time before closing to take that step.

Defects, Due Diligence, and the Deal Killer

02 Wednesday May 2012

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Once you are under contract to purchase a home in Georgia, you enter the due diligence period, during which you, as a buyer, does all relevant inspections and investigations and ultimately decide whether or not you would like to proceed with the sale.  This is very buyer-friendly, since during this period the seller is bound to the buyer and cannot enter into other contracts for the sale of the home (except as back ups)– but the buyer is free to terminate the contract with no penalty.

This due diligence period is relatively new inGeorgia.  We used to have “inspection periods” instead.  In the former version of our purchase and sale agreement (with the inspection period rather than the due diligence period), it was tougher for a buyer to get out of a contract once she or he had entered into one – to terminate the contract, the buyer had to find a defect in the property through the inspection, ask the seller to fix it – AND the seller would have to refuse to fix it for the buyer to get out of the contract.  If the seller agreed to fix all defects, the buyer was bound and would be liable for breach of contract if they failed to proceed.

If as a buyer during this inspection period you decided you wanted OUT of a contract, one tactic was to call in a REALLY tough inspector – like the one known as the “Deal Killer” – and come up with something you knew the seller could not or would not fix.  The Georgia Association of Realtors Forms Committee decided the inspection period created a perverse incentive in that respect.  There was too much litigation over what is or is not a “defect”.

So they changed our contracts to conform with those of a majority of other states – and now in Georgiawe no longer have the inspection period.  Instead we have the due diligence period or the “FREE LOOK” provision.  During the due diligence period, which it typically anywhere from 7 to 14 days, the buyer can terminate the contract for any reason or no reason at all.  They do not have to have found something during the inspection not to their liking, and they do not have to give the seller the opportunity to fix any defects.  They can simply notify the seller that they have decided to terminate.

Thus, it is in the seller’s best interest to keep the due diligence period as short as possible.  That way, if the buyer does terminate, the property can go back on the market quickly and hopefully with little ill effect.  There is always some ill effect when a buyer terminates, however – the next buyer will wonder WHY the first terminated.  Sometimes there is just no good reason.  But the subsequent buyer will be more suspicious, and will devalue the property accordingly.

For the buyer, of course, a longer due diligence period is preferable.   There is really no risk for the buyer.  This creates a different sort of perverse incentive – some buyers will get a property under contract before they have really decided if they want the place or, perhaps, before they have even seen it. This is a particular problem in foreclosure sales, where there are often multiple bids.  A buyer looking for a bargain may make multiple bids on several foreclosure properties, but not even visit those properties until they win a bid.

To end due diligence, typically the parties will enter into an “Amendment to Address Concerns” – in which the seller agrees to fix or give monetary compensation for repairs needed to the property.

MY HOUSE IS UNDER CONTRACT – WHAT HAPPENS NOW?

22 Wednesday Feb 2012

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CONGRATULATIONS!  You have a contract on your home.  You have a willing and able buyer and you have come to terms on the sale of the home.  What happens between now and closing?

Unless the buyer is purchasing “as is” (usually not the case) the buyer has a “DUE DILIGENCE PERIOD” – typically somewhere between 7 and 14 days.  During that time the buyer can terminate the contract for any reason or no reason at all.  The buyer can simply send a notice of termination and the deal is over – you are left with an unsold house and a search for the next buyer.

But do not worry – it does not often happen like that.  Instead, the buyer will have an INSPECTION – by a certified home inspector.  The inspector’s job is to find anything and everything that is wrong with the place, so don’t be surprised or offended.  Also, the standard inspection report is about 30 pages long – so don’t panic about that either.  It contains a lot of OTHER information in addition to any “problems” the inspector has found with your home.

After the inspection, the buyer will provide the inspection report to you and ask you to fix items that the inspector says need to be fixed.  They might ask for EVERYTHING, so be prepared for that – but more often the buyer will pick what is most important to THEM.  You can either agree to fix these items, or you can negotiate a dollar amount to compensate for the things you don’t want to fix.  You don’t have to agree to do ANYTHING, but it’s best to be as reasonable as you can – because again, during this period, the buyer is able to TERMINATE the contract for any reason or no reason at all. 

Once the due diligence period ends, the buyer cannot back out of the contract (except under a different, applicable contingency – financing or appraisal, for instance).  If they back out prior to closing and no other contingency gets them out of the contract, they lose their earnest money.  You, the Seller, can then claim that earnest money OR you can sue for damages.  But rest assured – a vast majority of the time buyers do NOT back out once the due diligence expires.

There may also be the aforementioned FINANCING and/or APPRAISAL contingency associated with the contract.  The financing contingency gives the buyer an OUT from the contract if they are unable to obtain financing.  The period can be anywhere from 7 days to 30 days.  As a seller, you have likely insisted on a prequalification letter from a lender – so you know the buyer at least HAS talked to a lender – and have negotiated as short a period as possible. 

The appraisal contingency is sometimes a longer contingency.  Sellers attempt to negotiate as short a period as possible, of course, but the problem is that many lenders are ordering multiple appraisals – sometimes even the day prior to closing.  So imagine the buyer’s dilemma.  They think that the property has appraised and there’s no problem – and then the lender orders ANOTHER appraisal and it comes in low.  As a seller, all we can do is keep in contact with the buyer’s agent and make sure that at least the first appraisal is ordered in a timely manner.  There’s no way to know in advance if the lender is going to order multiple appraisals.  It is not the norm, but it can and does happen.

Say the property does NOT appraise for the contract price – it appraises for less.  In that instance, if we are still within the appraisal contingency period, the buyer can (and will) ask the seller to sell the property for the lower price.  If the seller refuses, the buyer can walk from the contract.  But if the seller AGREES to sell for the lower price, the buyer is bound (unless another contingency applies).  One sticky issue here can be when the seller has agreed to pay for some of the buyer’s closing costs.  Say the contract is for $100,000, seller paying $5,000 of the buyer’s closing costs, and the appraisal comes in at $95,000.  Well, that’s what the buyer is REALLY paying, right?  Because they are effectively getting $5,000 back.  STILL, the buyer has the right to insist that the seller lower the purchase price AND keep the closing costs in.

What happens NOW?!?!  All contingency periods are up.  We are waiting for closing.  Time to have all your utilities disconnected as of the day of closing, except for water.  It is common to leave water on for three days after closing.  The reason for this is that the buyer must present a closing statement to get water service – and, of course, they won’t have the statement until the day of closing.   In addition to scheduling the disconnection of utilities, do not forget to put in a change of address with the postal service – www.usps.gov – and notify your credit card companies, magazine subscriptions, and the like of your new address.

What can you leave in the place?  Best to leave nothing except what was agreed to in the contract (with the exception of any manuals for left appliances or the neighborhood directory).  If you want to leave anything else, or think the buyer might want you to, get your agent to get the okay from the buyer.  A typical issue here is that you cannot leave old paint cans unless the buyer says it is okay, for instance.  (Paint is not always easy to dispose of).  Then, hire someone to do one last, final, deep cleaning.  All that is required under the contract (unless there is a special stipulation) is that the home be left “broom clean” – floors and carpets swept, horizontal surfaces wiped down, ovens and fireplaces cleaned, etc.  But you don’t want to have an issue the day of closing over dirt; simpler to pay someone to do one last sweep.

Then, to closing it is!  Your job at that point is to bring all keys and remotes to the closing table.  Most of the documents will be signed by the buyer – you will have only a few.  You can give the buyer a forwarding address and/or email if you so choose – but that is by no means required.  You can always ask them to contact your agent if mail arrives for you after closing.  If you have gain from the transaction, you will be given a check at the closing table or you can have it wired directly to an account (this can be arranged ahead of time).

And you are done!!  CONGRATULATIONS!!!  You have sold your home in a difficult market!

WE ARE UNDER CONTRACT!

12 Monday Dec 2011

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So, you’ve made an offer, the seller has countered, you’ve countered the counter… and after one exchange or many, you have agreed upon the terms of the contract.  What happens now?  First, you need to schedule an INSPECTION.

An inspection will cost between $350 and $600, depending upon the size and complexity of the home.   You want an inspector who is ASHI (American Society of Home Inspectors) certified.

My favorite inspector is Bryan Dilworth of Cornerstone Inspection Group.  Their website is http://www.atlantahomeinspector.com/ or you can call 770.436.2667 to schedule.  Chuck LeCraw, also an inspector, owns the company and he is great also.  They don’t charge you until the inspection is DONE, so you can schedule without worry (if you are calling before the contract is finalized, something happens and you do NOT get under contract, you won’t have to pay).

Your inspection company will ask if you want a RADON TEST. Radon is an odorless substance which emanates from natural stone in the ground.  It has been shown to cause lung cancer.   The main place we worry about radon is in a BASEMENT – and even if you do have a basement, if it is unfinished and you are not planning to finish it, it is not as crucial.  In fact, the radon testing protocol is that the radon is placed on the lowest FINISHED level, so they would put your radon test on the main floor if your basement it unfinished, where it is highly unlikely that there is any radon.  But if you have a FINISHED basement, I would absolutely order a radon test.

The only areas of town I’ve personally seen radon tests come back POSITIVE are near Chastain (just North of Chastain Park) and Tucker.  Both tests were done in finished basements.  I hear the closer you get toStone Mountain, the more likely they’ll find radon (it’s released from the granite).    What happens if they FIND radon?!?!  Well, you REMEDIATE it, which consists of plugging up any cracks and bare ground and in some cases, putting in a ventilation system.  It can cost 2,000 or so.  Not cheap.  If you discover radon during the inspection period, it is the seller’s job to pay for it.

Once you have your inspection, your inspector will issue a written report detailing everything he has found that is wrong with the property.  The average inspection report is 26 to 30 pages long, so don’t panic if yours is lengthy.  A lot of it will consist of general information and pictures. With me, your agent, you will decide what to ask the seller to fix, replace or repair – and thus the second big negotiation begins.  You must finish these negotiations within the due diligence period or EXTEND the due diligence period.

The seller can either agree to fix, replace or repair the inspection items themselves prior to closing, or can give you a monetary concession in lieu of repairs.  That monetary concession will have to pass muster with your lender.  Oftentimes a lender will NOT allow a check made out to a third party vendor at closing – instead you’ll have to negotiate more seller-paid closing costs or a reduction in the purchase price.

If the seller agrees to make repair, specify that receipts for those repairs will be provided at least three days prior to closing so that you can be sure that they are done and check to make sure that they are done correctly.