What is an exclusion in a real estate contract? What is an inclusion? Both of these refer to fixtures at the property which is for sale.

Generally speaking, a fixture is any item affixed or attached to the house, townhouse, condo or property which is installed with the intention that it be there permanently. For example, cabinets in the bathroom, kitchen or elsewhere are fixtures. So are lights mounted from the ceiling, built-in ovens, in-ground (not potted) rose bushes.  The exception to the rule is anything attached solely for earthquake safety.  This would be the case if you have a large hutch which you have bolted to the wall so that it doesn’t topple in the case of a big quake. In Silicon Valley, fixtures are normally included with the sale of the home.

Exclusions refer to fixtures which the seller does not want to include with the sale of the real property (real estate).  For instance, there may be a light fixture in the dining room which is a family heirloom and the seller does not want to leave it with the house.  It would be noted either in the MLS, with a note at the property or mentioned when the buyer’s agent calls the listing agent to ask about offer instructions. Other examples could be a special fireplace screen, curtains in one or more rooms (may match a bedspread or other decor), or even a rose bush in the garden that has sentimental value.

Inclusions refer to personal property (property which is not affixed) which the seller will leave even though it is not required since it’s not attached.  Commonly we see refrigerators, washers and dryers included, even when they are not attached.  Sometimes furniture may be negotiated also, such as patio dining set, a sofa or perhaps a very large dining table that won’t fit into the seller’s new house, but fits where it is perfectly.

It is important to note that if an inclusion is mentioned in the MLS, it still should be written into the purchase agreement if the buyer wants it (and this is written into the contract form as a reminder). Otherwise the seller is free to donate, share or sell those items.

When in doubt as to whether or not something is included or excluded from the sale, always ask before writing or accepting a contract to avoid unhappy surprises or conflicts later!

Home buyers in Silicon Valley are getting frustrated, discouraged and disheartened as they write offer after offer, only to lose out in multiple bid situations. It’s not just the poor FHA home buyer either – this is happening to those with 20% down and more too.

What can be done to improve the odds of success?

Sometimes the buyer’s agent either does or doesn’t do certain things which can impact how your real estate purchase offer is viewed by the listing agent and seller(s).  Here are 5 important things that the buyer’s Realtor or sales person can do which will help the odds of success:

1. The agent should read the MLS printout carefully to see if there are any instructions regarding offers.  This one may seem obvious. but too many buyer’s agents just draft the offer and send it in, ignoring information that will probably be useful (such as offer deadline, preferred form - CAR or PRDS contracts, availability of disclosures, the request to call before writing the contract etc.).
2. The buyer’s agent should call or email the listing agent before writing the offer (and after reading the MLS!).  Sometimes there are requirements or just preferences that won’t be known unless contact is made.  Additionally, though, the listing agent will simply want to know about the level of interest and not have any surprises – it’s a courtesy call.
3. The agent should ask if it is possible to present the offer in person…and be willing to do it, of course.  Many seller’s agents won’t want a live presentation (most would email), however the fact that your agent is willing to spend the time and make the effort to present in person usually speaks volumes about his or her professionalism. It’s also a hint that the agent is a cut above most.  In my real estate practice, several times I beat out other offers by asking if I could meet with the listing agent and sellers to discuss my clients’ offer, and then doing it.
   
4. Ideally, the offer package should be comprehensive and come with as much documentation as possible, including an offer summary (by the buyer’s agent), pre-approval letter, copy of the initial deposit check, contract with all initials and signatures and all mandatory spaces completed.  A good buyer’s agent will also run comps and coach the clients on offer price and terms and may encourage the buyers to write a letter to the sellers.  Depending on the circumstances, “proof of funds” may be wise to include too.  Each situation is a little different but the more comprehensive the buyer’s offer package is, the better the odds.  Many agents send over only partial documentation. Don’t let this happen to you!
5. Finally, the buyer’s agent needs to behave with professionalism and courtesy.  This is another point that might seem obvious, but sometimes buyer’s agents say things which are not polite to either the listing agent or, worse, directly to the seller.  When in the presence of the seller, the listing agent and the public especially, a buyer’s agent should not loudly or harshly criticize the property.  That’s just plain hostile and it won’t make the listing agent want to work with that agent (now or later).  Realistic assessment of a home’s flaws is totally fair, but doesn’t need to be done with a bullhorn.  Discretion is appreciated.

It doesn’t happen often, but sometimes agents just don’t slow down long enough to get the process and the offer package “just right”.  It matters because frequently there are several equally good bids on a property, and the one that stands out as better, even by a small margin, will either win the deal or at least win a counter offer.

For more reading:

Silicon Valley real estate bidding wars
Is your lender keeping your offer from getting accepted?
Home buyer tips

Silicon Valley home buyers want to understand time frames, expectations and requirements when signing a purchase offer on real estate.  One of the most important to fully grasp is when the initial deposit check will go to escrow and be cashed.

The quick answer to the question about when the Silicon Valley real estate purchase offer check will be cashed:

Your initial deposit check or good faith deposit check (or wire transfer or other means of conveyance) is due within 3 business days of acceptance (also called “contract formation”) unless the contract is changed by checking the box and filling in the blank for a different answer.  By the way, everywhere else in the contract, time is measured by “days”, not “business days”. This is the one exception!

Two sets of forms, almost the same regarding the initial deposit

In Silicon Valley, we have 2 sets of forms that we use for writing contracts, completing disclosures etc.  One is the PRDS or Peninsula Regional Data Source forms.  The other is the CAR or California Association of Realtors forms.  In many ways they are similar.  Regarding the good faith or initial deposit, they are nearly identical.

The PRDS Real Estate Purchase Contract is briefer & more streamlined, so let’s start there.

Let’s look closer at the area for the amount being deposited and have a better look at the words :

Once again, it’s 3 business days – though there are almost a myriad of other choices as to what’s happening with the check!

Bottom line: when you write an offer or contract on a house, condo, or townhouse that you wish to purchase in Silicon Valley, be prepared to have the check get cashed by escrow within (not after) 3 business days!

Silicon Valley home buyers (and sellers) are faced with a myriad of questions and choices when completing or reviewing residential real estate contracts to purchase the property.  One of them, early on, is whether or not a particular day is chosen for closing escrow or if instead it’s a number of days from contract formation (acceptance) to closing.

Which is better?

The are pros and cons to each approach, of course.  Many buyers want to be able to plan, without any ambiguity, when they will move in to their new home.  (For some this can be a matter of feng shui, astrology or a sense that some days are more fortuitous than others.)  This can work if negotiations are not protracted.

With distressed sales, though – bank owned properties (REOs) and short sales – and sometimes with multiple offers, the negotiations time frame can be hard to predict and if you pick one particular date, you may well have to change it later or find that you don’t really have enough time because a week or more gotten “eaten up” with counter offers, waiting for a bank or seller to respond or other delays. In those cases you may want to have the flexibility of writing in the length of escrow (number of days) rather than picking a certain date.

As always, talk with your professional real estate licensee for guidance as each case may be different.

Some Silicon Valley home buyers do not want to have their own buyers agent, but instead expect that they can find properties in the San Jose area that they want to see and request that the listing agent show it to them in a private appointment.  These same potential buyers may be surprised that the listing agent may refuse to show them the listing outside of a regularly scheduled open house – that is, if the seller is permitting open houses.

What’s going on?

In earlier articles we’ve discussed the need for a buyer broker agreement (verbal at the least, but possibly in writing) and why you, as a buyer, ought to have your own representation at the negotiation table.  (If you missed these, see the links under “related reading” below.)   Today I want to dispel the myth that the listing agent is required to open up and show condos or houses for sale to anyone who calls and requests seeing them and explain why that’s the case.

Showings of homes for sale are determined by the listing agreement or contract between the home seller, the listing agent or Realtor and the broker

The most important thing for buyers to understand is that the accessibility of the home for viewings depends upon the agreement, verbally or in writing, between the owner of the property and the agent/brokerage hired to market, negotiate, and sell the real estate.   It’s not an “on demand” situation where an interested buyer can insist on seeing the property as desired. Here are some of the expected scenarios and reasons why showings are somewhat restricted most of the time:

• Some properties are tenant occupied and it may be the case that you cannot even see the house or condo until after your offer is accepted. Most often it will be challenging to see homes with renters in them, but it is possible, usually, to see them prior to purchasing. (This is less true with duplexes, triplexes and four plexes. Apartment buildings are always sold “subject to inspection”.)
• Other times there may be a restriction such as 24 or 48 hours notice required for showings when homes are owner occupied.
• Most of the time, the seller has requested that any private showings, by appointment, involve ONLY pre-approved buyers. The sellers don’t want to waste their time with tire-kickers.  They want serious buyers.
• Most of the time, a seller will not want the listing agent to also represent the buyer and will expect serious home buyers to have a buyer’s agent.  If you are working with your own agent, that’s who should show the home to you.  If you have your own buyer agent, he or she can see what is involved in showing the property to you by looking at the agent version of the MLS (which includes showing instruction information and restrictions)
• Some sellers want open houses, some don’t.  For those selling a home during the holidays, often the for sale sign and lock box are removed and it becomes harder to get into these properties.
• Safety is a HUGE concern, both for home owners selling on their own and for realty professionals. Each year, Realtors and other real estate professionals are injured or killed in their line of work. If this surprises you, ask yourself how smart is it to meet total strangers at an empty house? It’s not.  If you want the listing agent to show you the house, expect to be asked a lot of questions (are you preapproved? if so, with who? how can we verify that?) and usually expect to meet the agent at the office first. Many Realtors will ask to photo copy your driver’s license prior to taking you to the home – this is for personal safety reasons. We realize that you will feel uncomfortable but please remember that real estate is risky for us and we absolutely must be cautious.

Related reading:

Do You Need a Buyer’s Agent? Or Should You Find a Home, Then Use the Listing Agent?

Silicon Valley Home Buyers: Should You Use a Buyer Broker Agreement?

Smart, saavy Silicon Valley real estate agents won’t take just any listing.   New agents (or brokerages, for that matter) or those struggling may be less picky.  This may be confusing to home owners who find that some Realtors will agree to list the home, others won’t – so let’s discuss it a little.

Real estate licensees aren’t just people who hold open houses on weekends.  Rather, real estate agents are independent businesspeople in the business of selling real estate. Many of them work 50+ hours per week.  In order to be successful, they have to evaluate the probability of success, whether with buyers or sellers, before deciding to take on those clients.  If they agree to work with buyers who never buy or sellers who never sell, they will be out of time, out of money, and if they make this judgement mistake too often, out of business entirely.   In the last 4-5 years about 1/3 of real estate salespeople have left the industry.  Those who are surviving or thriving are very judicious about how they expend their time and resources.

Under some circumstances, home sellers may project enough “red flags” or have unreasonable expectations such that real estate agents will turn down the chance to list their home.  Here are a few things I’ve run into over the years, either personally or heard about from other agents who said no to sellers:

1. Unrealistic expection on likely sales price of the home (demanding more than the probable buyer’s value of the home)
2. Unwilling to compensate agents or brokers as they require OR expecting them to take on far more work than is to be expected in selling a property (such as overseeing the entire remodel of a house – we are not general contractors!)
3. Overly restrictive showings (too much advance notice, insisting that listing agent be present for all showings)
4. Not permitting some basic marketing or access avenues (no open house, no sign, no lockbox) or unwilling to follow sound professional advice on staging, presale inspections to make the property attractive to buyers – these are “basics”
5. Problems with showings (messy, smelly homes or sellers insist on staying home during showings, follow buyers around in the house etc.)
6. Secretiveness – when sellers won’t level with agents about their plans it sets a bad, even scary, tone that causes agents to worry about hidden risks
7. Nastiness, second guessing or micro-managing – some sellers may want to call the agent 8 or 10 times per day or desire to oversee even the smallest detail on marketing the home (see every email sent, for example).  Others can be rude or insulting.  Some constantly double check everything the agent says to verify every angle or detail and then quotes back to the agent “well another agent I know says…” which is frustrating and insulting.  Sometimes listening to others at work, who are unqualified to give real estate advice and getting that “over the cubicle wall advice”, causes home owners to not follow their agent’s advice (see # 4 above).
8. Concerns over legal problems and liability, such as a home owner with dementia selling the house rather than the adult kids or other friends or relatives getting a power of attorney to do it for the parent (I have run into this directly). If there are any mental capacity issues, it is a lawsuit waiting to happen.

Most of the time, real estate agents want to list good homes and have the opportunity to market and sell them.  If they (or I) see enough “red flags” with a seller or the property, though, it’s time to decline the opportunity.  Often times, these same houses do not sell the first time they are on the market but later become an expired, withdrawn or cancelled listing.  (Sometimes they simply take a very long time to sell as the owners adjust to market realities and begin to accept their agent’s advice.)  Sellers wonder to themselves, “why didn’t my house sell?”  The answer is often an inflated price but just as often there are other problems compunding the failed sales effort too, very frequently an unwillingness to follow professional real estate advice.

Not every home will sell.  A wise real estate sales person will not get hooked into a listing agreement where the seller isn’t as motivated to sell the property as the agent is to sell it.  This is a team effort, requiring a shared vision of what needs to happen.  Even under the best of circumstances, homes don’t always sell.  So if there are big issues from the seller or the way the home is shown, it’s a bad business decision for the real estate licensee to get tied to them – it’s too much like trying to do the job with one hand tied behind your back. Who agents and brokers work with is ultimately a business decision.  If they are turning you down for the listing contract, at the end of the day it’s a statement about your or your property’s business risk. If you are confused as to why they decline the opportunity to list your house, townhouse or condo, you can always ask them, and most likely you’ll get a helpful answer.

Selling a house or home is usually very challenging and emotional, even under the best of circumstances.  It’s all the worse if the folks on the other side of the transaction – the buyers, their real estate agent or both – are difficult, rude, hot headed, verbally bullying, not performing on time or otherwise making the escrow and sale more upsetting than is necessary.  What can a seller or listing agent do about it? Can the seller cancel the contract and boot the bad guys out?

If there is a seller contingency, it may not be hard to do this at all. (For example: home sale subject to seller finding replacement property – they can just not look!) But that’s rare. Most of the time, only the home buyer has contingencies.

In Silicon Valley, we have 2 different contracts in use – the CAR and PRDS.  Before we can answer the question of how to get rid of nasty buyers or agents, it’s important to know and understand the contractual agreement clearly.  So the first question is “what does the contract say?“  Often the sellers don’t have an easy way to boot obnoxious agents out of contract.  But it may be possible to catch the buyers in a default (that is, not performing) via some subtlety in the contract and that may eventually enable the sellers to cancel the contract.

Both of the purchase agreements used in Santa Clara, San Mateo and nearby counties include a list of rights and responsibilities for both sellers and buyers.  They also include time frames: buyers and sellers must do these certain things within a specified number of days (some are boilerplate and others are written in and variable). So these contractual “technicalities” may be time frames which have been ignored inadvertently.

It’s no slam dunk most of the time, though, to get rid of buyers and their real estate representatives.  Usually it will be necessary to put the other side on notice that they are out of contract and to give them a chance to get back on track.  This official notice that they are at risk of having the sale cancelled is called a “notice to perform“.

At what point can you give a “notice to perform”?  There’s a little debate about this, so before electing to send over that kind of missive it might be good to have your agent check in with his or her manager or broker.  Some agents and sellers, if feeling harassed, may issue one before a deadline is even missed by the other side.  Normally this is taken as hostile – it is – and can seriously worsen the relationship between buyers and sellers without having any practical or helpful impact on the problems. In other words, it’s a bit like waving the red cape.

It’s not fair, having to deal with rude, nasty people who say untrue things, who bully others and seem to be just emotionally playing with the folks on the other side of the transaction.  I know.  Sometimes there’s not much you can do about it in the immediate sense.  But nastiness finds its own punishment, eventually – even if you never see it.

Rude, nasty agents (and agents who encourage or allow their buyers to be that way) risk every future transaction in the area since their colleagues will talk about them – a lot!  There are a few Realtor bullies in the Saratoga and Los Gatos market areas, but who they are is no secret to other real estate professionals in the area.  Agent reputation is so important! When there are multiple offers, the loathed agent and his or her clients will be at a huge disadvantage. So too with some homes that don’t sell – it can be that the agent community is literally boycotting a jerk. In the long run, it doesn’t pay to be obnoxious.  Call it karma, but other agents remember the guy who took advantage of a typo for personal gain, who showed the love of bullying at every turn or who controls to the point of choking out everything and everyone.  So too on the other end of the spectrum – a well liked agent who “plays fair”, communicates and performs without drama or game playing will find doors open that might otherwise be closed.

This is also true of everyone else we deal with too – title companies, inspectors, repair people.  A bad turn will be told to the entire agent community, but so will a good turn or going the extra mile. Reputation eventually is its own reward or punishment.

Got a nasty situation on your hands? One of the best things you can do is to keep a calm head. As a seller, you can say no to unreasonable demands.  If the buyers shoot you an addendum, even if it is reasonable but you want them to back out of the sale, you can say no. You are not obligated to do more than make the home available for inspections, provide your disclosures in a timely manner, keep the house and property up and any other contractual requirements.

Sometimes the listing agent is so frustrated at the inability to protect sellers from rude buyers’ agents or buyers that he or she gets emotional too. This doesn’t help.  If you’re angry or upset, don’t leave a voice mail or shoot over a snarky email.  Let yourself calm down first.  If the other agent is doing it to get a reaction out of you, don’t give him or her the pleasure.  Let calm heads prevail.

Sometimes a  friend will call or email me and say that he or she is buying or selling a house, has a Realtor but wants my advice about the real estate purchase contract nuances, analyzing comps, or any other real estate related question. Usually it’s someone out of my Silicon Valley market area, though a few times it’s been someone closer to home.

Most professionals don’t want to be asked to give professional advice when they aren’t going to be compensated – this is true for lawyers, doctors, and many others.  But it’s also true for real estate professionals, too.  The problem, though, is not really that some folks overstep the bounds of asking for a favor. Instead, it is a matter of ethics.

I cannot interfere or meddle if you or they have a Realtor.  This is part of our Realtor Code of Ethics:

Code of Ethics
The Code establishes time-honored and baseline principles that come from the collective experiences of REALTORS® since the Code of Ethics was first established in 1913. Those principles can be loosely defined as:

• Loyalty to clients;
• Fiduciary (legal) duty to clients;
• Cooperation with competitors;
• Truthfulness in statements and advertising; and non-interference in exclusive relationships that other REALTORS® have with their clients.

Non Realtor real estate licensees also have boundaries on what they can and cannot do, too.  One big area is that we are not supposed to advice outside of our areas of competency.  I feel pretty good about a lot of areas ranging from Santa Cruz to the south to Redwood Shores to the north and Fremont, Pleasanton or Livermore on the east bay plus all of Santa Clara County.  But I don’t know Sacramento real estate, Santa Barbara Real Estate or San Diego real estate, so it would be wrong for me to suddenly delve into those arenas.  Even more so if that friend or relative asking “for a favor” were working with a Realtor or other real estate licensee and my commenting would constitute interference.

What’s your home buying style?  Impulsive? Cautious? Analytic?  Deep bargain hunter?

A few times in my real estate career, I’ve worked with Silicon Valley home buyers who were so anxious to purchase a home that I was concerned that their impulsivity might be a cause for buyer’s remorse later.  When that happens, I try to slow them down a little – I’ll suggest “let’s look at least a few homes” if it happens that they want to buy the very first home they saw. Part of my fiduciary duty is to look out for my clients’ best interests, and sometimes that means putting the brakes on just a little (or telling them what they don’t want to hear).

More commonly, it’s the other extreme that I see in our very well educated, extremely analytic population: paralysis by analysis or an overabundance of caution. (Sometimes it’s overabundance of bargain hunting.)

The vast majority of successful Silicon Valley home buyers are somewhere in between: they set up their priorities and goals (“I want to buy in the next 4 months at this price with this location or school and this type of property and size of home”). The clearer they are on their goals, wants and needs, the easier it is to help them get it – as long as they have realistic expections. That is key!

Once – only once – I sold a Los Gatos house in which the husband purchased without the wife’s physically seeing it.  This is rare!  They had moved so many times that he understood precisely what mattered to her, and if the house met that list, he was good to go.

The national average for the number of homes seen before buying is about 10, but it is more than that here in my experience.  If buyers know what they can afford and what they want, often they and I can narrow what’s seen online to 10-20 homes we visit in person and from those, one or two should be a best fit.  For highly motivated, determined, realistic and organized buyers, and this can usually happen in 2-3 weeks.  (If you are selling one house and immediately buying another, this is really the only way you can swing it without having to rent in the interim.)

What are the odds of successfully buying a Silicon Valley home this year?

How likely is someone to buy a house or condo?  It varies, of course.  As a Realtor who is not in it for one transaction but instead for a long term relationship, I want to help consumers to make good choices.  It is usually easier to slow down the impulsive home buyer (note: not all real estate licensees will do this, some just want to make a quick sale) and harder to move someone who’s bogged down by unrealistic expectations or exaggerated fears to the middle zone where they are able to write a successful purchase offer on a home.

Most of the time, capable buyers who don’t write the offer after months of looking are either overly cautious (afraid of overpaying, usually) and unrealistic about market values (often wanting something for 10-20% than it’s worth in the current market), although sometimes it’s another issue entirely, such as husband and wife not agreeing on either the priorities or the budget.

If you’ve been looking at homes for more than a couple of months, or have seen more than 20 homes and not found yourself able to write a purchase contract with your Realtor, it’s time to evaluate the process and what the stumbling blocks might be.  Are you hoping to find a perfect house at a perfect price in the perfect location?

Waiting for perfect….

This situation of “waiting for the right house to come on the market” is not so unlike the seller of the overpriced house waiting for “the right buyer to come along”.  If all of the other home buyers have seen and rejected that listing, it’s not very likely that another home buyer will come along and decide it’s just perfect or that the price is right.  We speak of the “probable buyer’s value” and try to determine what the odds are that a buyer will pay what the seller expects. For a sale to happen, the buyer and seller expectations have to line up.  So too for home buyers – if you have seen everything over many months, it is extremely unlikely that any new listings will fill the bill any better.

How your Realtor can help

If you find yourself unsuccessful in home buying and it’s been a few months, and you’ve seen plenty of properties, talk with your Realtor.  It is very difficult to be objective about oneself  and where one might be on the spectrum.  If you’ve hired a good real estate agent or Realtor whom you trust and who is presenting you with homes to see that match your basic list, ask him or her what the issue seems to be and what needs to happen for you to be a successful home buyer.  Please be open to hearing what your realty professional has to say and suggestions being made.

Over the last few years, I’ve helped many San Jose area renters to become home buyers.  Sometimes they did have to write a few contracts before being able to buy (if there were multiple offers it can be very challenging!).  Sometimes they had to change their expectations, order of priorities, location or budget for it to work for them.

If you really want to buy – and not just look – now’s a great time. Interest rates are fantastic. In many areas of Santa Clara County it’s a buyer’s market.  If you can line up your expectations with the market realities of today, you can be a homeowner too.

For further reading:

How To Increase The Odds That Your Purchase Offer Will Be Rejected

Home buying

Buying a Silicon Valley home? Understand that unless you are buying “all cash“, you will need to show your real estate purchase agreement to your lender, and your lender may want to see inspections, reports or disclosures based on what you’ve written in that paperwork.  And then the bank, credit union or lending institution may ask for repairs prior to close of escrow, even in an “As Is” sale.

This happened to my buyers a few months back.  They were buying  their first home using an FHA backed loan.  In the offer, we indicated that we would be having a few inspections (home, pest, roof, pool). Because financing with FHA backed loans is a tougher road, the lender did, indeed, require certain work to be done prior to close of escrow.  It was supposed to be an As Is sale so the buyers ended up paying for work to be done in order to close (and the seller allowed us to reduce the price somewhat).  Luckily they were all improvements that my clients intended to make anyway – but it was inconvenient and stressful to have to rush to have the work done, and of course this did cause delays.  (We did discuss not having the inspections listed in the offer, but my clients very much wanted them in it.)

For this issue, does it matter which contract you use, PRDS or CAR?

If you are planning to purchase a Los Gatos, Saratoga or San Jose area home, most likely you and your real estate agent will use either the newest PRDS contract (Peninsula Regional Data Service, employed from Los Gatos to San Francisco) or the CAR contract (California Association of Realtors form which is used throughout the state of CA).

There are many differences  between the CAR and PRDS contracts, but both of them have a place for listing at least some of the disclosures which are to be expected and whether or not the buyer intends to order a termite or pest inspection.  The CAR form also has a place for listing any other inspections the buyer intends to have done.  (Below find part of the section which lists inspections – too wide to fully reproduce here, unfortunately.)

One of the nice things about the CAR contract is that it is very clear as to who’s ordering and paying for what.  Nowhere in the paperwork, though, does it state that unless an inspection or disclosure is named, it cannot be ordered later.  So what is becoming common practice “in the field” is to simply not mention these disclosures or inspections in the offer.

Is that lender fraud? Might be – I will leave that to our attorneys to say for sure. Most of the mortgage people I talk with suggest that we simply leave things out to keep the situation uncomplicated. (I wonder if others in the bank feel the same way?)

The difficulty comes when buyers want to buy and sellers want to sell but the house, or pool, or some other element isn’t 100% perfect… If the bank sees the inspections reports and disclosures, it will of course show that the 50 year old house isn’t “like new”.  The bank doesn’t like that.  In more than a few cases, lenders essentially don’t permit an As Is sale.  In these cases, the banks, credit unions or other lending institutions start rewriting the obligations on buyers and sellers.  Maybe the buyer wants to do the repair differently after close of escrow – perhaps with alternate materials, but now is forced into paying for whatever is fast just so that escrow can close.

It’s not a simple problem, it’s complex.  Just as every house or condo is unique, so too are the issues that come with them.  If it were a simple matter that every house had to have a pest clearance, we could easily manage that.  But in fact it’s not so straightforward.  In response, agents and home buyers are leaving more and more blanks in the contract.  Personally, I’m not comfortable with it.  I present the situation to my clients, they talk with their banker or mortgage broker, and they decide what to do.  I think we could have a better solution, though. Don’t you?

Many of us cheered to hear that some of the large banks (who have not been wonderful to deal with regarding loan modifications, short sales and foreclosures or bank owned property sales) were getting sued by federal regulators for various types of malfeasance.

Most recently, the Federal Housing Finance Agency, which is in charge of Fannie Mae and Freddie Mac, filed a lawsuit against 17 major banks, including Bank of America, Citibank, Morgan Stanley, and several others (see a complete list here).

So how does this impact you, the Silicon Valley real estate home buyer or seller?

Imagine you’re on the board of any of these institutions.  What do you do to protect your shareholders when something like this happens?  Perhaps first of all, you make sure that whatever you’re accused of doing cannot happen in the future.  You hand down new policies and get them implemented immediately.  No exceptions.

Some of my buyers got caught in this situation, without warning, when their lender informed us that there will be a week-long delay in closing due to new procedures which are mandatory for every file, bar none.  Our loan contingency was removed awhile ago (with the lender’s assurance that all was fine).  We will still close escrow, but late.  This never makes anyone happy.

Right now, if you are trying to buy a house and will be relying on lender financing, I suggest you find out if your bank or lender is involved in a big lawsuit and if so, how this may be impacting real estate purchase contract deadlines.  Most lenders do need 17 days to get you fully approved if you go into the escrow pre-approved (with a real pre-approval, not a pre-qualification only) and 30 days to close the sale.  But if your lending institution is in a messy legal battle, it could take longer, and it could be a surprise.  In escrow, no one likes surprises, especially if they cause any sort of default.

This situation will probably benefit the credit unions and banks which did not misstep with the subprime loans.  Got a great bank that performs fast and is free of legal battles? Please share it here!

If you are purchasing your Silicon Valley home “all cash”, you will be in a stronger negotiating position.  Most of the time, you will get a slight discount on the price and the escrow period should be smoother as there will be fewer hurdles with no financing contingency.  Sellers always welcome cash offers, especially now.

What do you need to know if writing an all-cash real estate offer?

First, make sure you really do have your funds available or “liquid”.  Sometimes buyers think that because they have stock worth a certain amount of money, funds in an overseas bank account or equity in another property they will have access to that cash almost immediately.  It often doesn’t work that way.

Large sums of money coming from out of the United States may have to sit in a bank account for some time, possibly 30 days.  Domestic wire transfers usually have little or no hold time. Is your money overseas? You may want to consider moving it well in advance of the close of escrow. Speak with your escrow officer and Realtor about the details.

Selling stocks, mutual funds or bonds?  The listing agent may be satisfied if not 100% is liquidated up front but will want to see that a substantial amount is already in cash.  Remember, though, that selling off those assets is NOT a contingency of the contract.  If the stock market falls through the floor tomorrow and you’re already in contract and with no financing contingency, your initial deposit could be at risk should you not complete the sale – that would be considered a default. (Please read your real estate contract carefully!)

Some home buyers write “all cash” offers when in fact they are taking money out of another residence or real estate.  In truth, it may look like a slam dunk to get the money but if there are any complications with the refinancing of the other property, those home buyers could be at risk.   These sales are contingent upon financing – just not the home in escrow!  There are many ways in which these transactions can get mucked up, so be careful if skipping a loan contingency when in fact a loan is needed.

Second, if you make an all-cash offer, you must provide proof of funds along with your purchase agreement.  It would be foolish for the listing agent and seller to not require this cash documentation -  it is an important element or term of your contract.  Your agent can white out or black out your address, account number for the sake of privacy but leave showing your bank balance and name.

Third, one of the pluses of an all cash offer is that it can close faster. If all the conditions are right, this could be just a few days or a couple of weeks.  My fastest ever was 5 days; there were already loads of inspections (2 of everything, as I recall) and the buyer was in an enormous hurry due to a tax deadline with a 1031 exchange.  An offer without financing could close in 2-3 weeks even if the buyer wanted new inspections.

Why would a seller want this? Sometimes the seller needs cash in the bank to purchase the next home.  For example, you could purchase his or her house in 3 weeks and that seller could complete a sale on another house maybe a week later.  (The seller would often deeply appreciate a brief “rent back” for that week or so to avoid 2 moves in a short window of time.)

How much of a discount could you expect with a cash transaction vs one with a loan?

Probably not as much as you might think. (About a year ago I had a listing that received multiple offers.  The lowest – a true low-ball offer – came in about 20% lower than list price.  The highest, of course, was well over list!  The low-ball buyer said “but my offer is all cash!” and could not believe that he didn’t get the house.  Most sellers will wait 30 days for that much more money.  Wouldn’t you?)

In my experience, the cash discount varies but is usually in the 2-4% range.  Most sellers (but not all!) will take a little lower of a sales price in order to have the higher probability of success with the closing due to no loan issues.  If there are multiple offers, you may get no discount but you will be the winning bid.  All cash is always a help!

For further reading:

What happens in escrow?
What are the benefits to paying cash for a home?

Sometimes I read the queries consumers use in finding my site and chuckle at the questions.  Sometimes I’m horrified (one person asked Google how to kill a squirrel and found my Live in Los Gatos blog as I’d written about an old gopher trap there).  And sometimes the questions are really good, and they inspire a post.  Today I saw the one which asked such a good question about residential real estate listings that it is the subject and title of this article. Today we’re going to talk commissions and how much and what percentage is offered to buyer’s agents.

Disclaimer: commissions are NOT fixed by law.  This is a negotiable fee.  Brokerage companies do have the right to set their fees, though.

Sellers have a right to know about the buyer’s agent commission and what’s happening in their marketplace

Some  Silicon Valley real estate agents do not seem to discuss the buyer’s agent compensation (or commission rate) with the sellers.   This cost, paid by the seller as part of the total brokerage fee, is really a marketing dollar.   It can help to attract the attention that may lead to showings and offers. When the oddball listing comes up with an ultra small number, sellers may not realize that it may dissuade licensees from showing their home. (I once actually saw $1 offered!)

Most typically in San Jose today, what is offered to the buyer’s agent is a commission rate of 2.5 to 3% of the sales price of the home.  Sometimes it’s a flat fee, such as $5000 or $10,000.  At times it’s more than 3% (when the seller is very motivated – I have had good luck using that technique with expired listings that were considered shopworn by the buying pubic and their agents).  On rare occasions the figure is less than 2%.  With my clients, I often run reports from our MLS, export it into an excel file and show them the commission rates offered for homes which are for sale, sale pending and recently sold and closed, especially in unique markets or in places where there’s a lot of variation in this amount.  Very often, the homes that are unsold have an overall lower average commission rate as compared to homes that are under contract or sold & closed.  This number can vary based on area, price point, and sale type (distressed sale vs “regular sale”).  We’ll look at one example next, luxury homes for sale in San Jose.

Example: Luxury real estate for sale in San Jose – homes over $2 million and the commission rate offered

Right now in the city of San Jose, there are 20 homes listed at or over $2,000,000 which are available to purchase.  The average commission rate offered for these luxury homes is 2.65%, but the rates range from 2% to 3%. Here’s the breakdown:

2% = 3 homes
2.25% = 1 home
2.5% = 10 homes
2.75% = zero
3% = 6 homes

If we eliminate the one REO and two short sales, the average rate goes down a tad, to 2.6%.  There are no pending sales in this market, and just 2 that have closed escrow in the last 3 months, one at 2.5% and the other at 3% (average 2.75%).  This is possibly a hint that listing the property with just 2% might not be a good idea. Or is it a fluke?  If we look at what has closed in the last  12 months in this strata of high end San Jose homes, we find that just 6 homes have sold and closed – clearly, it is an uphill battle to sell an estate type property in San Jose right now!  The average commission rate offered for these sold luxury houses was 2.625.  The breakdown is as follows:

2.0% – zero
2.25% – zero
2.5% – 4 homes
2.75% – 1 home
3.0% – 1 home

Of the sold & closed homes, not a single one had a commission rate at less than 2.5%.  There may be other things at play – but this would be a “red flag” if I were taking the listing and my client wanted to offer less than the 2.5% to the buyer’s side.  It would be an indicator that perhaps we should look at this issue a little more closely, because it could potentially damage the odds of selling. I would not advise offering 2% to the buyer’s side, given these numbers.

Isn’t this information that sellers should know about?  I think so.

Splitting the brokerage fee: is it 50/50?

Sometimes, agents take listings for a certain percentage but do not share with their clients what amount of that is being offered to the buyer’s side.  If the seller agrees to a 6% listing (as an example only), he or she might assume that 3% will be offered to the buyer’s side.  This does not always happen, though.  Some agents keep 60% of the commission, reasoning that “they do most of the work”.  This happens in all segments of the market, but perhaps most especially among some “short sale experts“.  It is a good idea, when listing your home for sale, to ask about this and find where it is itemized in your listing contract.  Some listing contract forms include the commission rate breakdown, but others do not (only calling out the whole fee).  When the home is on the MLS, ask to see the full or “agent” printout.  The commission rate for the buyer’s agent will be there!

A related issue: the stigma of the greedy agent.  The total commission offered is not a secret to the buyer’s agents forever.  At closing, both agents receive packets from the title company handling the escrow, and the dollars are laid bare.  Agents can see if the listing agent split the brokerage fee evenly or not.  And if not, they may prefer to not work with that greedy listing agent in the future.  Ideally, you want to hire a real estate agent with a great reputation, one with whom other agents really want to work.

In summary: sellers need to be given total transparency on the commission rate and where the brokerage fee dollars go.

Does any of this matter to Silicon Valley home buyers?

If you are a Silicon Valley home buyer, most of the time you will be unaware of the commission rate offered to your agent.  Most agents will show you most homes for sale – but if they run into one with an ultra low fee offered, that may not make it onto your showing list unless you have signed a buyer broker agreement.  Think of it like the for sale by owner homes – there’s either no guarantee of compensation or very little compensation.  If you want to see all homes, regardless of compensation offered, consider signing a buyer broker agreement.  It can open doors for you!

Side note – where the money goes after closing:

The public sometimes believe that all agents make a ton of money for very little work.  I’d like to address that misconception for just a moment and discuss what agents “keep” out of what they “earn” at closing.

In most cases, the Realtor or real estate licensee does not keep 100% of the fee or commission which is paid at close of escrow.  Most agents work at a brokerage which takes a portion of the compensation – anywhere from 60% to 15% usually goes to “the office”.  Sometimes, too, a referral fee is paid – that would come “off the top”.  Most typically agents keep 60 – 80% of the commission.  And out of that, they pay a number of things, of course: fees to the brokerage, memberships and license fees, etc etc. – often amounting to 30 – 50% of their take home – and then they pay Uncle Sam!  The “net net” or amount to live on after all of that can be as little as 1/3 of what they are initially paid.

Default is a dirty word, but how many Silicon Valley home buyers and sellers understand what a it is?  Consumers often confuse the term default with cancelling the sale at any time – even backing out of a contract during the contingency period for a legitimate reason. Buyers cancelling during the contingency period is very easy to do in most cases and is very seldom a default.

Default is a strong word which refers to a failure to do something promised in contract or not doing it on time; we sometimes call it “non-performance”.  In the purchase agreement, buyers and sellers both make promises to do certain things within a certain time frame, so either one could potentially default.

Defaults don’t always cause the sale to not go through, but they can cause a delay and it may harm the other party – at the very least, not fulfilling the promises of the contract adds unnecessary stress and drama to real estate transactions, which are already, in & of themselves, stressful.

Home buyer defaults

For instance, the following items are areas where a buyer could default (not an exhaustive list):

• not putting the initial deposit (good faith deposit) into escrow on time
• cancelling the sale after removing all contingencies or without cause allowed by the contract
• not removing contingencies on time (or possibly ignoring other deadlines)
• not completing loan papers on time
• not returning the signed disclosures on time
• not bringing “good funds” to escrow in time for closing

Missing contingency removal deadlines may be a default.  For instance, the PRDS contract states on page 1 of that agreement:

BUYER’S  FUNDS:  Buyer  represents  that  all  funds,  including  deposits,  cash  balance,  and closing costs, will be readily available as “good funds” (as determined by Escrow Holder) at  the  time  of  payment.  Obtaining  these  funds  is not a contingency of this Contract.

The loan approval, though, may be indirectly tied to whether or not the buyer liquidates stocks or other accounts to provide the down payment.  What happens if the loan is fully approved except for the verification of this down payment?  The buyer’s job is to have the funds available so that obtaining them later does not cause a delay.  If a delay is caused because the buyer didn’t get the funds ready on time, that is a buyer default.

Not every default is an equally grave problem, of course.  In the case above, the buyer can go ahead and remove the loan contingency and continue to liquidate the down payment assets (which should have been done much earlier in the escrow).  BUT, if the buyer does not complete the sale due to a problem with getting those funds, his or her good faith deposit will be at risk via the liquidated damages clause because getting those funds is not a contingency.

Home seller defaults

Sellers, too, can be guilty of defaulting on contractual promises. Here are some areas in which a seller could default:

• not moving out on time
• not providing completed disclosures or reports on time
• not having work done which was contractually required (such as pest work or repairs)
• not keeping the power & water on for inspections and final walk through
• not providing the loan payoff information, or any other required information, in a timely manner to the title company (escrow)
• causing a delay in closing due to not signing off on time
• refusing to schedule or attend a sign off to sign the closing papers

In Silicon Valley, there are two purchase agreement forms in use: the California Association of Realtors (CAR) contract and the Peninsula Regional Data Service (PRDS) contract.  Generally speaking, the PRDS & CAR contracts are similar on many points.  They are not so similar in the treatment of defaults, though.

What does the contract say about defaults?

Oddly, the CAR contract only mentions the word default twice, and in both cases the topic is a buyer’s default, first in the liquidated damages paragraph (25) and next in the other terms & conditions paragraph (27).

Paragraph 25: “If Buyer fails to complete this purchase because of Buyer’s default, Seller shall retain, as liquidated damages, the deposit actually paid.”

What about the PRDS contract?

One of the pluses to the PRDS purchase agreement, in my opinion, is that it has a fairly comprehensive discussion on the concept of default in the realty transaction (paragraph 22).  (The PRDS contract is used on much of the Peninsula and in the west valley areas of Santa Clara County, including Los Gatos, Saratoga, Monte Sereno, Cupertino, Los Altos and many other parts of Silicon Valley.)

[The first part of this paragraph (mentioning paragraph 5) is referencing the liquidated damages clause.]

This PRDS discussion of default lays out very clearly that if one party defaults, he or she may be liable for damages.  Seller doesn’t move out on time? Perhaps he or she will be footing the bill for the buyer’s storage and hotel costs.  Buyer default causes escrow to not close? Deposit is at risk.  “Other Non-Performance” puts everyone involved on notice that a default may cause the one responsible to pay damages.

When is it not a default?

Buyers usually have some time to investigate the property and anything which materially impacts the home’s value or desirability.  Let’s say they have 10 days to remove their property condition contingency, and during that time they have a foundation inspection which turns up a lot of work which needs to be done.  The buyers could ask the sellers to fix it, and if the sellers refuse, the buyers may be able to get out of the contract and have their deposit returned (less any costs not yet paid for inspection, appraisal, etc.).  This contingency period gives the buyers the right to back out if they learn something about the property that they cannot or do not accept.

So too with an appraisal contingency – if the home does not appraise to purchase price, they don’t have to buy it.  Also with loan or other contingencies.

Sellers sometimes have contingencies, too.  If the sale of the house, condo or townhouse is subject to (contingent upon) a bank approval of the sale because it’s a short sale, the seller does not have to sell if the lender either does not approve the sale or if the lender will only approve it if the seller will put money into the transaction.  The seller can elect to not complete the sale if she or he does not like the bank’s terms.

If the home is significantly damaged prior to close of escrow due to something like an earthquake or fire, the buyers can usually get out of contract even if their contingencies have been removed due to the changed condition of the property.  This would not be a default.  It’s a “no fault” situation.

In closing, if you are in transaction to purchase or sell property, it is imperative to remember that time is of the essence and all changes must be agreed to in writing.  There are things which need to be done quickly and without delay, especially here in the San Jose area, where escrows are normally just 30 days long.  (A good friend of mine, a Realtor in Buffalo, NY, tells me that there a normal length of escrow is 60 days.)  If there’s a problem with some part of what you need to do, see if you can fix it with a little more time and if so, consider writing an addendum and asking the other side to agree to the new terms.  Staying out of default will make the transaction infinitely easier and happier for all.

For further reading:

What is the difference between the CAR and PRDS purchase agreements? Does it matter which contract is used?

It seems like a simple enough question: “how long does it take to buy a home in Silicon Valley?”  (Not how long to find the perfect house or condo, but how long from the time the offer is accepted until the sale is finalized and you can move in.) The answer has a few factors which can swing the outcome one way or the other, making the escrow time frame short or long.

Variables that make home buying faster or slower:

• whether or not the seller has pre-sale inspections (with a short sale, usually not)
• whether or not the home is a condo, townhouse or PUD (and if so, if the HOA docs are available upfront or are only ordered once the offer is accepted)
• whether the buyer is only pre-qualified or fully pre-approved for a loan
• the amount of cash down – an “all cash offer” can make the sale very, very fast
• the loan type – an FHA loan will need more time to be processed and the sale will close slower
• the contingencies involved and their time frames as written in the contract
• the sale type: regular vs short sale
• buyer needs or seller needs unrelated to the transaction: they can agree on a somewhat longer escrow in the contract (purchase agreement) if so desired
• if it’s a special type of property, such as a luxury home or estate OR a mountain property, there may be additional inspections needed and it could take a little longer to close on these as well

The fastest home sales I’ve seen are the all-cash offers of houses (not townhouses or condominiums) in which the seller already has excellent home inspections (my fastest listing that sold: 5 days, all cash, buyer HAD to buy within a week or would suffer enormous tax penalties).

Most buyers today have 20% down and are pre-approved, and most sellers today in the San Jose – Los Gatos – Saratoga areas do have pre-sale inspections done.  Escrows for these typical sales are running for these types of transactions close to 30 days, sometimes more like 35 days.

For FHA home buyers, most of the time it takes 45 days to close escrow once they have an offer which has been accepted. Once in awhile, it’s a little longer.  Sometimes a seller may want a longer escrow for various reasons.

Status of the HOA Docs: If the property being sold is a planned unit development (PUD) or condominium, as opposed to a single family residence, it can take longer to complete the sale sometimes if the home owners and their agents have not already ordered and have in hand the home owner association (HOA) documents for the buyer to review.  This very thick packet is extremely important to get to the purchaser so that she or he knows as much as possible about the community. It includes the meeting minutes (where you find out who’s upset about what), the newsletters (any big neighbor issues may be discussed), the rules, bylaws etc.  It can take a week or more, in some cases, to get this from the HOA.  The sooner the buyer sees it, the faster the sale can go.

In general, 30-45 days is the “normal” amount of time for most Silicon Valley residential real estate sales to close. This is what you’ll most likely find in a regular sale or a normal property.

Sixty days is considered a “long escrow”.  Ninety days is the absolute limit that the buyer’s lender would tolerate, but often is so long as to be inadvisable.  A lot can happen in 90 days – loan rates can jump and even if you’re pre-approved, the loan rate change can lock you out of closing.  Most sellers and their agents will not be enthusiastic about a 90 day close of escrow for that reason.

Ditto that for “contingent offers“., which can take quite a bit of time to close.  In Santa Clara County, offers which are subject to the sale of another home are usually fairly unpopular.  Home sellers frequently do not want to deal with these bids at all, but may consider them if their home has been on the market a very long time and if the home which needs to be sold seems to be very marketable.  (For more information on contingencies of all kinds, please read Competing Against Multiple Offers: Contingencies and Timeframes.)

Bank owned properties, or REOs, tend to close within the normal time periods.  However, the banks often are not as generous as “regular” sellers and may permit only 7 days for inspections even if the buyer legitimately needs more time.  (Caution: banks often utilize passive contingency periods rather than active, meaning that if you say nothing and the date passes, you are presumed to be moving ahead with the sale and if you decide not to complete the sale you could be in default.)

How long does it take to buy a short sale in Silicon Valley?

Short sales are sales with a type of contingency, but instead of it being a buyer contingency (which is usual), it’s a seller contingency.  In these cases, the sale is subject to the seller’s lender approving a short payoff AND of the seller in agreeing to any terms in the short sale authorization from the lender(s).  How long does it take to close escrow on a short sale?  This varies widely.

With a short sale, the seller is still the owner (not the bank), but the bank can say whether or not the sale will be completed – either permit it or not.  Because of this power, the bank can sometimes insist on changing some of the terms of the contract, from time frames or price or downpayment that the buyer’s responsible for to the commission the involved real estate agents will be paid at the close of escrow.

How long does it take to get bank approval or lender approval?

Again, it depends on a few things:

• how many loans are there? (one is fastest, most often)
• if there are 2 or more loans, are they at the same lending institutions or at separate ones? (2 loans at the same credit union or bank will be infinitely easier than 2 loans at different banks)
• how much of the seller’s debt will have to be forgiven by the lender? Often a small amount can go through a more streamlined process than if it’s a large amount and may even be worked through a separate department
• whether or not there was a prior sale that fell through – if yes, then the paperwork is probably in the system and the lender just needs another seller to step in accept the prior terms. In those cases, it may be very quick.

The fastest I’ve seen short sales approved by a bank is 2 weeks and the sale closed 30 days later, so it was 45 days total. That is lightening fast and atypical.  More often, if there’s only one loan it takes the lenders 30-60 days to respond to the offer which has been accepted by the seller.  If there are 2 or more loans and they are not all at the same credit union or bank, it could take much longer to get an answer.  Sometimes there is no answer at all….  This is extremely frustrating and should not happen.

For more reading on the topic of short sale escrows and closings, please also review this article:
“Short Sales Sell But Often Don’t Close: Why?”

If you are buying a short sale, it’s imperative that you be flexible as to the closing schedule because so much of what determines it is beyond the control of buyers, sellers and agents.  Once you get that bank approval and the seller agrees to the terms, then it should proceed like a regular sale in terms of time frames.