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No substitute for experience
Old 02-07-2005, 03:41 AM   #1
 
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No substitute for experience

This is a true tale of woe, followed by some advice.

Some good friends of mine (a few years younger) have owned river property not too far from us for several years.
Their primary residence was in farm country about 14 miles away. They enjoyed their weekend place so much
that they listed their house with the idea they woulcl move to the river cottage permanently and use the
house proceeds to upgrade. Good pre-ER idea, although I don't know if that was their motivation.
They got an offer and accepted it, then moved to the cottage. You guessed it. The buyer backed out
and now they sit in a sort of limbo, with their house
sitting empty.

MIstakes they made:

Hiring a "friend" who was relatively inexperienced.
Moving out before they had a solid deal.
Only getting $500 earnest money on a 6 figure deal.
Allowing the realtors to control everything. The buyer
and seller never spoke until after the deal fell apart.

The advice. The last time I sold real estate (small deal)
I first insisted on enough earnest money so that the buyer would feel some pain if he just got cold feet.
Then, I eliminated the standard verbage on disposition
of the earnest money and added language that if the
deal failed to close for ANY reason (other than the buyer
failing to obtain financing) I got to keep ALL of the earnest money. Obviously the realtor didn't like this
as she was afraid it would make the buyer nervous.
I didn't care. Once I had to sell a piece of property 3 times
before I finally closed the deal. Murphy's law is alive
and functioning in the real estate business.

JG
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Re: No substitute for experience
Old 02-07-2005, 05:38 AM   #2
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Re: No substitute for experience

Yours are words of the wise, JG. Good advice, especially for those of us (like I am) who are getting ready to sell a property.

In 1995, the same thing happened to me that happened to your friends. Thought I'd "sold" my house to an older couple, moved all the furniture out, and at the last minute they backed out. To make a long story short, I was able to keep half of the earnest money, but not without a fight. The real estate agent I used backed away from the failed deal as soon as the "buyers" reneged. She was no help at all once the going got tough.

Sellers beware.

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Re: No substitute for experience
Old 02-07-2005, 06:41 AM   #3
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Re: No substitute for experience

John,
Some good advise there.
I'm about to put my house on the market. This is the first time I'm selling a house. My key factors are:
1. As you mentioned - earnest money that compensates me for the time the house is not being actively sold.
2. Information about the buyer before I accpet a bid:
a. Does the buyer have to sell another home before closing on my house?
b. Does the buyer have to financing established?

Any other questions I should ask about the buyer before accepting a bid?

Question: Doest the real estate agent get a percentage of the earnest money if the deal does not happen?


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Re: No substitute for experience
Old 02-07-2005, 06:51 AM   #4
 
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Re: No substitute for experience

I forgot to add that in my friend's deal, it was also contingent
on the buyer selling. The buyer did sell, but to another party also contingent on the sale of their home. A disaster in the
making.

Re. "who gets the escrow"? I have seen it a bunch of different ways, but as I said, on the last deal where I was
seller the language stated I got it ALL if the deal fell through
for ANY reason, other than the financing. If I had been
more knowledgeable on past sales, I would have been
doing this sooner. You might still have trouble getting the
money out of a busted sale, but it puts some extra pressure
on the buyer to close.

JG
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Re: No substitute for experience
Old 02-07-2005, 07:50 AM   #5
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Re: No substitute for experience

Quote:
John,
Some good advise there.
I'm about to put my house on the market. *This is the first time I'm selling a house. *My key factors are:
1. As you mentioned - earnest money that compensates me for the time the house is not being actively sold.
2. Information about the buyer before I accpet a bid:
a. Does the buyer have to sell another home before closing on my house?
b. Does the buyer have to financing established?

Any other questions I should ask about the buyer before accepting a bid?

Question: Doest the real estate agent get a percentage of the earnest money if the deal does not happen?

Personally I think it's a good idea as a seller to have language in the contract that allows you to continue to market the property and accept other offers with the first buyer having "first position".

As far as the RE agent getting a percentage of the earnest money if the deal doesn't happen; not around here. They do of course, get money if the deal goes through, so I've decided that the agents don't work for the buyer or seller, they work for the deal...helpful to keep their motivation in mind.

malakito.
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Re: No substitute for experience
Old 02-08-2005, 02:33 AM   #6
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Re: No substitute for experience

Hi guys,

The system you are describing is similar to what happens in England. You can end up with a chain of buyers/sellers all dependent on the person at the end of the chain.

The Scottish system is completly different. When you make an offer to buy a house it is legally binding - no way out! The actual legal contract (the missives) is finalised within a couple of weeks of the offer and is just a formality. The downside is that buyers have to get surveys, valuations, and reports done BEFORE they make the offer - the offer document itself is standardised and can't be made conditional.

House sales in Scotland usually terminate on a closing date with blind offer bids being made by interested parties. The downside of this system is that it tends to inflates house prices a bit - people tend to make higher than market value offer to be certain they will get the house they want.
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Re: No substitute for experience
Old 02-08-2005, 02:56 AM   #7
 
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Re: No substitute for experience

Helo jarrob. Very interesting post! I have a little different view of the system in Scotland. IMHO
the buyers are paying exactly the market price
based on the system in place. Anyone can bid, right?
My point is that if someone is willing to pay "X", then
that is the market price.

JG
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Re: No substitute for experience
Old 02-08-2005, 03:03 AM   #8
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Re: No substitute for experience

JG,

You are quite correct. The practice here is that houses are marketed as "offers over" and the price listed is under the market value (sometimes by as much as 30%) in an attempt to attract a large number of potential buyers. But, most people are wise to the efforts of the salesman (RE agent) and in any case the mortgage lender won't lend more than than the market value so the end result is usually OK.

I've never really understood why buying property has to be so complex - it's no different to buying anything else!
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Re: No substitute for experience
Old 02-08-2005, 11:19 AM   #9
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Re: No substitute for experience

My expirience with house purchases has been the sellers says I want $1000 ernest and I say no. THAT is a deal breaker I will give you $500 and that is it. I also let the seller have it all if I back out for any reason other than failed financing. I also do not look at any house that already has an accepted offer on it. I don't like bidding wars, unless I'm the seller. I also do not move out until closing and that is part of the contract, I have no problem paying rent for the house I used to own. From what I've read, my expirience is far less than JG's.
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Re: No substitute for experience
Old 02-08-2005, 02:31 PM   #10
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Re: No substitute for experience

Quote:
John,

-earnest money that compensates me for the time the house is not being actively sold.

a. Does the buyer have to sell another home before closing on my house?
b. Does the buyer have to financing established?
Dex,
A lot of what you can "require" depends on your market and how competitive demand is. Here in the Seattle area, supply is down 30% from last year.
To be considered a "qualified buyer", you have already been preapproved for financing, can close within the contract period and can make a non-contingent offer.
If not, there are likely several others who can.

If I am accepting an offer an offer with any contingencies, the house remains on market till closed or contingencies are removed and I have a satisfactory earnest money (you can require it to be increased to take a contingency).
If an offer has any contingencies beyond financing for a strong buyer (has evidence of being one), the agent is instructed to keep marketing and the property remains listed (perhaps with a notation offer pending)
As far as earnest money splits with realtor--they are negotiable--be sure to read the fine print in your listing agreement--if you do not change it, the typical agreement will give a chunk to the agent
Good Luck
nwsteve
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