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50 Shades of Grey and the Real Estate Purchase Contract
Our California residential purchase agreement is not an iron-clad purchase contract.
Sacramento real estate agents primarily use purchase contracts developed by C.A.R. as agreements to buy a home in Sacramento. It seems that with every new case law, generally originated by some disgruntled buyer, the contracts are revised. There are also obvious revisions because the language is often confusing. In an attempt to be clear and speak with a human voice, lawyers can sometimes royally mess up legal contracts because they lose sight of their audience and get all hung up on courts and judges.
For this reason, no purchase contract is typically not without a way to sue somebody over something. There is no black-and-white language in a purchase contract, regardless of what a person might be led to believe. A person can read one paragraph that defines a situation, seems to set the boundaries, and then a second paragraph can bring that first paragraph into question. By the time you reach paragraph 27, the 14th paragraph might appear ambiguous. It’s one of the reasons we have an 8-page California Residential Purchase Agreement and Joint Escrow Instructions (revised April 2013), coupled with its sister, the two-page Buyer’s Inspection Advisory (revised October 2002).
I look at that and I think what? C.A.R. could not come up with one single revision for the Buyer’s Inspection Advisory over the past 12 years? Here, C.A.R., have another glass of grappa. Also, when I started in real estate (you kids get offa my lawn), we had a choice between a one-page or a two-page contract. In fact, at one point, I created my own purchase contracts and professionally printed printed my brokerage’s purchase contracts in 3-part NCR — which at that time seemed like a brilliant move but was probably one of the dumber things I have done in my life. Hey, I was in my early 20s, so I had an excuse for my ignorance, not to mention, the 1970s was like one long LSD adventure.
I am astonished that buyers today sign this paperwork without engaging in a minor heart attack. It would almost be better in some ways if an agent just put blinders over a buyer’s eyes, stuck a pen in her hand and directed her to draw squiggles as her signature. Don’t read, just sign, would be the message. Yet, we encourage our buyers to read the real estate purchase contract and they don’t understand a darn thing in it.
Don’t even get me started on ZIPforms and why there is no field for the ZIP Code, of all things. I have brought this matter up to ZIPforms, but it has not been changed. Nobody else probably cares but I realize it’s a problem because of short sales. The bank negotiators do not like the fact there are no ZIP codes carried forth from page to page. Why don’t the C.A.R. lawyers spend time looking at this situation and fixing it? They should also fix the listing agreement fields so subsequent addendums match.
Bottom line, if a buyer or seller wants to challenge a portion of the purchase contract, a smart lawyer will find a way to do it. There is nothing black-and-white about our legal system. It’s more like 50 Shades of Grey . . . in more ways than one. But don’t ask your Sacramento real estate agent to define the real estate purchase contract because we don’t practice law.
The Sacramento Real Estate Market Train
The fall real estate market in Sacramento is not at all how I pictured it would be. Usually, transitions are made slowly and you can see the danged train coming, but not this year. One day it was summer and the next, bare trees. This was a very abrupt change in the Sacramento real estate market. But like with all things in life, you’ve got to go with the flow and change with it.
Take home pricing, for example. Just a short while ago, a listing agent could advise her seller to price a home very aggressively. In fact, this Sacramento real estate agent would push ahead of the curve. Examine all of the comparable sales for the past 6 months, single out the best for the last 3 months, determine the direction they were moving, calculate the difference, pare it with the active listings to position and pad it a little. That strategy no longer works in today’s real estate market in Sacramento.
The reason it doesn’t work is because the attitude of buyers has changed. Buyers always drive the market, even if it’s a seller’s market. Today’s buyers are worried. They are worried that another bubble is around the corner, which it is not. They are worried about interest rates going up, as they should be concerned. They are worried about whether they’ll still have a job tomorrow and whether our government will ever get back to work.
Meanwhile, you’ve got REOs coming on the market at almost double the prices from last year. I just spotted another foreclosure this morning. This was a home that I had sold a year ago as a short sale, a cooperative short sale through Bank of America. We had the cooperative agreement signed from Bank of America and yet still the bank released the servicing just days before we were set to receive short sale approval. Bam. Now the file fell into the lap of Seterus, the seller no longer qualified for the short sale, and the home went to foreclosure.
Back on the market today, a year later, at almost double the cost. The comparables in that neighborhood do not support the price.
Today, it’s better to be sitting at the back of the train and watching where the train is moving. Catching glimpses of the front of the train going around the curve. That’s how a Sacramento real estate agent will know where the market is headed.
photo credit: White Pass Train at Skagway, Alaska, by Elizabeth Weintraub
Not Every Sacramento Home Buyer is a Buyer
Every Sacramento home buyer should enjoy the luxury — and it is a luxury — of working with a buyer’s agent who will check out the property records before writing a purchase offer for that buyer. A Sacramento buyer’s agent at the very least should examine basic details but so many do not. When a buyer wants to write an offer, a lot of agents will just write it without giving much thought to the possible consequences for a buyer. I suppose they might think it’s not their job or maybe they don’t know how.
An agent has many sources at her or his disposal to find this data. At minimum, even if an agent doesn’t run the comparable sales for the Sacramento home buyer — which for my team members would be inexcusable — the agent should check to see who owns the property. Is it one person? Is it a trust? Does the owner’s address match the property address or are the owners living out of state? A quick call to the listing agent would confirm whether two people are on title or if one of them is deceased. You know, just stuff that makes the entire transaction run smoother and gives the buyer enough information to make an intelligent decision.
A potential Sacramento home buyer called yesterday about wanting to buy a home along the river that is a short sale. He asked if moi, his newly found Sacramento real estate agent, would be willing to write a purchase offer for him. As an experienced short sale agent, the first thing I did was look at the tax rolls. I see that this is an investment property for the seller. The second thing I notice is his second loan is a gigantic refinance for many thousands of dollars, and the lender is National City.
National City is now owned by PNC. This makes it a PNC short sale. A second loan held by PNC, especially a hard-money loan that carries recourse in California, is a difficult short sale to negotiate. That’s because PNC knows it can go after the seller personally and try to collect the full amount of the loan should the home go to foreclosure. When the security for that second loan is wiped out, because it’s a cash-out refinance, that lender, you can bet, will pursue it.
If the seller is not willing to negotiate with PNC upfront in this type of short sale, well, the odds are it will not get approved as a short sale. If PNC approved the short sale, by law it must release the seller from liability, but it is not required to approve a short sale.
Not only that, but there is a trustee’s sale pending shortly. It is very possible that a seller who waits until the last possible minute to put a home on the market as a short sale prior to a pending trustee’s sale is not a seller who is willing to negotiate upfront, but you never know. Weird things happen in real estate every day.
Armed with this information, the buyer chose to move forward and write an offer because he decided that he had little to lose. He was prepared to be disappointed. I asked a team member on the Elizabeth Weintraub Team to prepare an offer for him. My team member explained that we need a preapproval letter to accompany the offer because the way to postpone a trustee’s sale is to submit a purchase offer. The bank will not allow submission of a purchase offer without a preapproval letter. An offer without a preapproval letter is not an offer. It is an incomplete offer and considered insufficient to postpone a trustee’s auction.
The buyer could not produce a preapproval letter. He was irritated about my team member’s insistence on it, too. You see, he had sold his own home as a short sale a few months back.
The buyer said fine, he’d find another Sacramento real estate agent to write his purchase offer. That was actually a very good idea on his part, but a wasted effort.
Where Are the Home Buyers in Sacramento?
If you’re wondering where the Sacramento real estate market is moving right now, then this blog is for you. Because I list and sell a lot of homes in Sacramento, I can easily spot trends — if I’m paying attention and not hanging out with Myrl at The Dive Bar late at night. The trend now is buyers are in no big rush to buy, and inventory is lingering on the market. It doesn’t mean that a home won’t sell, it will just take a little bit longer and there might not be multiple offers.
I see some sellers are dismayed when they hear they might not receive multiple offers, but geez Louise, how many buyers does one seller need? A seller needs one committed and dedicated buyer who loves that seller’s home. It’s all about loving that home. It always has been. You just need to find that special person among home buyers in Sacramento.
A seller contacted me yesterday for an update on selling a home in Natomas. I had sent him a comparative market analysis last spring when the market was a frantic hotbed of activity. At that time, the home he wanted to sell could have listed for $225,000 and probably received multiple offers, which would have driven up the price a little bit. Today, that same home should be listed a little bit more conservatively, closer to $219,000, and he will most likely receive just one offer, and that offer might be for a little bit less.
This doesn’t mean prices are falling; it just means the strategy to sell is a little bit different. I suspect prices will stay fairly stable and probably rise again next spring, depending on where interest rates move. The thing about interest rates is movement doesn’t remove buyers from the marketplace as the economist at NAR predicts. A rise in interest rates simply lowers the purchasing power of the buyer. A half-point increase in an interest rate knocks down a buyer’s sales price by about $25,000. A full-point increase? $50,000 less. Home buyers in Sacramento should grab these historically low rates while they can!
I am including a chart below from Trendgraphix which shows the last 15 months of average sold sales prices by month versus the prices of homes for sale. You can see the average for sale price is higher than where the demand for homes lies. This doesn’t mean that sellers are asking higher prices and buyers are paying less, so don’t get confused about that. It means that the average sales price is higher than the average price most buyers can pay. There are more sales in the lower end. But look at that increase. That’s a 142% jump in our average sold price since summer of 2012, and it’s continuing to go up.
My conclusion is buyers can demand a little more and sellers will give it to them. Even in a market of limited inventory. Our inventory has almost doubled but it sits at 1.8 months. That is still incredibly low, and not a buyer’s market, unless we have no buyers. Where are the home buyers in Sacramento? I’ll tell you one agent shared with me this morning that her buyer has a list of 100 homes that the buyer wants to see. Who looks at 100 homes?
Disclosing Material Facts to a Sacramento Home Buyer
Buyers don’t care what you tell them as long as you tell them. That’s my opening statement when I hand home sellers a package of disclosures to complete. It’s the things you don’t tell a buyer that can come back to haunt you, not what you do say. If you don’t believe me, I suggest you Google: Snake Infested House in Idaho.
You take a neighborhood where I live and work as a Sacramento real estate agent like Land Park. Because I live in Land Park, I have intimate knowledge about the neighborhood, which agents who live outside of Land Park probably don’t know. If they don’t know, they can’t disclose those facts to a buyer. Although, it could probably be argued that they should know or should at least have asked questions of the seller.
On the front end of my marketing, I sell the delights of living in Land Park — the friendly neighbors, tree-canopied streets, fabulous restaurants, bike trails and our special attractions such as William Land Park, the Sacramento Zoo, Fairy Tale Town, the WPA Rock Garden, and Vic’s Ice Cream.
But there is also a downside — as there is with any neighborhood, I don’t care where you live. For example, I know which areas in Land Park routinely flood during a hard rain. I know where the feral cats, skunks, opossums and raccoons roam. Which streets get foot traffic and the origination of that traffic. When noise factors such as trains or freeways can be present. Parking ordinances. Which trees are protected. Selling homes in Land Park means more than what we used to call selling real estate in the old days: selling carpets and drapes. That used to be the definition of residential real estate sales in the 1970s. Except nowadays it’s more like selling hardwood flooring and plantation shutters.
The thing is after escrow closes, odds are something in that buyer’s new home will probably malfunction. And the minute it does, the buyer is likely to immediately jump to the conclusion that the seller knew about it and purposely withheld that information or concealed that defect. It’s human nature. We’re a suspicious bunch of people.
So, how do you bump up the odds that you won’t get sued after escrow closes? You hire an agent who can explain the inherent problems with some types of seller disclosures and can give you the right documents. You find a Land Park agent who knows the nuances of your neighborhood. I tell my sellers to disclose all material facts. If I know a material fact, I disclose it. I go into great detail about what a material fact is and why it’s important. I help sellers to recollect and disclose. We talk about the Transfer Disclosure Statement.
The other day a seller objected to a point I made in a disclosure. She wanted me to remove a sentence about the possibility that a neighbor’s dog might bark. No can do. The tenant told me the dog next door barked. I don’t know if the dog barks. The dog wasn’t barking in my presence. I noted that I did not hear the dog barking but the tenant said the dog barks. This disclosure doesn’t appear in my marketing materials. It appears on the agent visual inspection, on which I obtain the buyer’s signature, along with a pile of other documents after offer acceptance. I’m always thinking one step ahead of ways to protect my sellers yet conform to the law. That’s my job, and I take my job seriously.
The point is it’s not what you say, it’s how you say it. I don’t want my sellers ever ending up in court. Not if I can help it. And I can. If you’re looking for an agent in Sacramento to help you to buy or sell a home, call Elizabeth Weintraub at 916 233.6759.
While Elizabeth is on vacation, we are revisiting some of her favorite blogs.
