When the buyer or seller is not following the stipulations of the contract, you can issue them a Notice to Perform. Once this Notice is given, they will have a certain amount of time to make the required action or you can cancel the contract. The new Residential Purchase Agreement defaults this period to 2 days. So for instance, if the buyer has not removed their contingencies, the seller can issue the Notice to Perform. If two days after the notice has been delievered, the buyer still hasn’t removed their contingencies in writing, then the Seller can cancel the contract and return the buyer’s deposit. Keep in mind, that within this contract, Time is of the Essence. If the seller waited 5 days after the two day waiting period (or one week after they issued the Notice to Perform), they would have to issue a new Notice to Perform to the buyer if they wanted to cancel. In effect, the Notice to Perform has an expiration due to the “Time is of the Essence” clause in the contract.
Someone asked me today if it made sense to make a back up offer on a short sale. I think it’s a good idea. Short sales can take an average of 4 to 6 months to get lender approval. Several lenders are currently rolling out new systems in hopes of delivering short sale approvals on a more expedited schedule, but until this happens, you should expect a long waiting period. Because it can take a great deal of time, it’s not uncommon for the buyer to walk before the lender makes their decision. Many buyers will find alternate properties while waiting for the bank. So in this scenario, a back up offer would be able to step up and enter into a contract with the seller. Now, don’t get any silly ideas that the process would move more smoothly because the lender has already approved the short sale. If you have ever seen any lender approval letters, you would notice that the lender stipulates that the approval is granted only for this particular buyer. If a new buyer comes into play, the lender will take a few steps back and start much of the process all over again. It could still be several months before you receive your approval letter and are able to open escrow. I did encounter this situation recently. I had clients who made an offer in June 2009. They were not the accepted offer, but we let the listing agent know that we would like to be a back up. In the mean time, my clients continued to look for another property. In October 2009, the short sale approval came through, but the seller had lost their buyer. My clients were next in line. They entered into contract with the seller, and then they waited and waited… until finally we received written short sale approval in the beginning of March 2010. We were able to close escrow in the first week of April, nine months after they submitted their original offer! It always seemed like a long shot and something just sitting there on the backburner, but it turned about to be the best move. My clients have a new home that they love.
If you are the first person to answer the question correctly, you will win a $25 gift card from your choice of the following: Coffee Bean, Starbucks, Home Depot, Target or Barnes & Noble.
Here’s the question. (Post your answer below):
What is a short sale?
When negotiating with an unrealistic seller, it helps to gather as much information as possible. You want to know at what price the seller purchased the property. How much money, if any, did he put into the property? Are there any specific circumstances that have led to the seller putting his home on the market? This will help determine where the seller is coming from. He may be trying to recoup the money that he paid for the property. Or it may have been a labor of love, and he feels that his house is worth more. Either way, it’s going to take a lot of work to convince the seller to sell for less. If the seller doesn’t have to sell, then most likely he won’t. So it’s good to know the seller’s level of urgency. If the seller can wait it out for a couple of years, he will be unlikely to negotiate because he doesn’t have to; he’s merely testing the waters. “If somebody bites, great. If not, I’ll try it again when the market turns.”If the seller does need to sell, then you have something to work with. If possible, try to find out if there have been any other offers and at what price point. The listing agent may or may not be willing to give out this information. Legally, they can. As long as the seller is okay with it, the listing agent can disclose how much the other offers were for. But if the offers are low, many agents will not be willing to divulge this information. If you know that the seller has received a couple of offers that have been lower than hoped for, he may be getting a clue to where the home’s market value really lies. Market value is what people are willing to pay. If buyers keep coming in with offers at X, then clearly Y is not the right price. If you make a similar offer, he may no longer be surprised, and possibly ready to negotiate. The listing agent will also have more ammunition to talk the seller down. How the seller responded to past offers can also be insightful. Did the seller ignore low offers? In that case, it may be a better idea to make an offer at market value and say it’s your highest and best offer. If the seller’s pattern was to counter any low offers, then you may be able to start lower than what you’re willing to pay, and come up. This makes the seller feel like he’s getting something more out of you.In the case where there have been no offers, then Days on Market can be very telling. A listing that has been on the market for months, in an active market, is clearly overpriced. Having a strong understanding of the comps and a good rationale for your offer price can help the seller see the light. But it’s also important to make sure the listing agent agrees with your assessment, because it’s the listing agent who will advise the seller on how to respond.