Big Change in California’s Real Estate Purchase Contract

Tenting a home for fumigation can cost a couple thousand dollars depending on the home’s cubic feet.

In southern California where the majority of Realtors use CAR’s residential purchase agreement to make an offer, there have been a number of changes to the contract for 2015.  (CAR = California Association of Realtors).

One of the biggest changes – which could potentially restructure how buyers and sellers negotiate – is the removal of the WPA form. WPA stands for Wood Destroying Pest Inspection. It’s basically the form buyers includes with their offer that stipulates that sellers will pay for a termite report as well as any Section 1 items identified on that report. Section 1 items must be fixed prior to the close of escrow (lender requirements) and usually include termite infestation and dry rot among other things. These two are usually the big ticket items. And although these points are negotiable (as is everything in the contract), it was standard practice for sellers to pay for Section 1 items. This was handled up front with the offer. Sellers accepted the fact that this was a standard expense to selling a home. Then when buyers come back with a Request for Repairs, all repairs would be over and above the termite work.

But in 2015, the WPA has been eliminated. Potentially, buyers can still request termite work up front in the offer. And this will probably happen for some time to come. Eventually, however, the process will evolve and termite work will become part of the negotiations for repairs.

The biggest impact from this change is that sellers won’t automatically feel it’s their responsibility to do the termite work, i.e. tent their home for infestation, replace rotted wood with fresh wood. And sellers can simply say they won’t do the work. Of course, they will be more apt to do the work in a buyers’ market and probably less willing in a sellers’ market. These can be expensive repairs and buyers may have to get used to incurring this expense as time goes on.


Real Estate Advice: Do I Make an Offer on an Overpriced Listing?

It never hurts to put an offer in. And you won’t know unless you try. Yes, the sellers may be unrealistic and they probably have a strong emotional attachment to their home; the home does hold a lot of value to them. But the good news is that with an overpriced home, you, the buyer, should have very little competition.

First, you should look at how long the property has been on the market and have there been any price reductions. If it’s new on the market, then the seller my be less likely to negotiate. But if it’s an old listing, it may be a good time to make an aggressive offer. Your agent should have a conversation with the listing agent to guage the sellers’ position.

Then you should put together an offer and submit the comps that substantiates your number. The worst thing that can happen is the seller says no. And even then, I wouldn’t give up. If the property is still on the market in a few weeks or months, I would approach the agent again to see if the seller has any change of heart.

I’ve had buyers in both scenarios. I had a client last summer who fell in love with a condo but the sellers were priced way above market. We kept going back to the seller and after a couple of months, we were able to come to a number that satisfied both buyer and seller. The property appraised at the sales price and all parties were happy. Then I had another buyer a few months later who wanted to make an offer on a home but the seller had unreasonably priced the home. It was priced even higher than the new construction that was on the market. The listing agent let me present the offer to the seller in person. And even though we had the comps to justify the offer price, and even though the listing agent was on our side, and even though the seller agreed that the market was down, she was adamant that her home was worth the asking price and she wouldn’t budge. And you know what happened? My client walked away with no regrets and the seller eventually took the home off the market.

Real Estate Advice: Backup Offer in a Short Sale

If the bank does not approve the contract, and submits a counter, and the buyer subsequently walks, then the seller will not necessarily have to relist the property. Once the current contract is canceled, the seller can accept the new offer and it will be submitted to the bank for approval. The good news is that at this point, the listing agent should know what terms are required to get an approval from the bank. And you can submit your offer with those terms in place, if both you and the seller agree to them. From this point forward what happens will really depend on who the lender is. Some lenders will be able to approve the short sale relatively quickly because the “investors” have already stipulated their terms and they are already far along in the short sale process. However, some lenders start from the beginning because it’s a new buyer.
Your agent should be able to ask these questions of the listing agent so that you will know what to expect.

Making an Offer on an REO

When making a decision on how much to offer there are several things to consider.

1. What are the comps? Have your agent (and it shouldn’t be the listiing agent) pull the comparable sales in the area. Determine what you think the value of the property is.

2. Now that you know the comps, decide how much you’re comfortable paying for the property. This is not necessarily the same number that you’re going to make your first offer at, but it’s a good idea to know up front how much you’re willing to pay.

3. Assess whether you’re in a buyer’s market or a seller’s market. If you are in a buyer’s market, you have more leverage. You may not be competing with anyone else for the property which means you can make your offer lower than the asking price and see how the bank reacts. More often than not the lender will stick to their asking price but I have been able to negotiate lenders down considerably by understanding the market and geting the listing agent on my side. It can take time and patience but it’s possible. On the other hand, if you’re in a seller’s market, then you may need to make a more competitive offer. Ask the listing agent if there are other offers on the property. Usually with REOs, the listing agent will be pretty frank about whether offers are going over asking or not. And they will let you know how many offers you have. It’s also important to know if the bank wants to see your highest and best offer up front or if they will counter all offers.

3. Remember, you’re not dealing with an emotional seller. This seller only cares about the bottom line. And even if you make an offer hat is at or over asking, it’s the bottom line that the bank wants to see. Consequently, with REOS, it always a good idea to ask for very little else in the contract. For example, if you ask the bank to pay your closing costs (let’s say it’s $7,000) then the asset manager is just going to take out his calculator and deduct the $7,000 from your offer price. If you ask for termite work, the bank is going to deduct that cost from the offer price. The same goes for a home warranty and repairs. The list goes on and on. Of course, if no one else is making any offers, then you can ask for more. The bank will simply tell you what they will or will not pay for. But if you’re offer is going to be lined up with 10 other offers, you want to make sure your offer is as clean as possible.

4, One last tip for REOs: If your offer is accepted and during the transaction you want to ask for repairs, the banks are more likely to do repairs that are health and safety related. I’ve had REO transactions that are advertised “AS IS” and “no repairs” all over the MLS listing, and I’ve gotten repairs approved by the bank because I’ve been able to position them as health or safety related.

How Long Does it Take Banks to Respond to an Offer?

When it comes to REOs (or bank owned properties) the banks are much speedier than when responding in a short sale. The reason being, the bank is the actual seller in this situation and they have set the price themselves. REOs work much like standard sales with more normal timeframes. With that being said, it may take a little longer to hear a response only because you are dealing with bank employees with 9-5 hours. But it shouldn’t take more than a week or two at worst case scenario. Usually they respond relatively quickly. The one thing to keep in mind is that sometimes banks respond verbally. They don’t sign any paperwork until all terms are agreed on and at the very end the bank rep puts ink to paper. Although it’s not the bbest case scenario, you don’t really have a choice and have to move forward in good faith during negotiations. Also, the bank will usually add all their own boiler plate addedums for you to sign. They will not negotiate on these points. Pay extra special attention to these addendums because they quite often change timeframes and other terms in the contract.