From the category archives:

Boring Stuff About Contracts

The Transfer Disclosure Statement - Your buyer CAN handle the truth.

by Kris Berg on September 12, 2008

We closed escrow this week on one of our listings. Several things were unusual about this particular escrow. First, we had the pleasure of working with sellers seemingly delivered to us from heaven. They were thorough, they were cooperative, they were respectful, and mostly they asked for and considered our advice on preparing the home for sale every step of the way, acting as true partners.

The result was an accepted offer in 12 days when average market times in the neighborhood are approximately 60 days for sold homes and 120 days for active listings. The result was an escrow that actually stuck, one that was never in danger of cratering at all. In this market, it is rare to complete the process without finding yourself breathing out of a paper bag at least once during transaction.

It is so tempting for me to sit here and tell you that it was our superior representation that made the difference. The truth is, I have to give most of the credit to the sellers.

The Sellers Rocked

Looking back, I can point to many things that the sellers did right, all of which contributed to their success. They priced their home on the money. Pre-list, they agreed to make improvements, some not inconsequential from a cost standpoint, which we told them would add value and make the property more salable. In short, they listened, they trusted our advice, and they were willing to invest some time and money to ultimately save both. But arguably the most important thing they did right was treat the buyer with respect, and by this I mean they were completely honest and fair in their dealings throughout the transaction. The most glowing example of their voracity, from the buyer’s perspective, came in the form of the Real Estate Transfer Disclosure Statement.

If You Have to Ask, Disclose!

The Transfer Disclosure Statement, or TDS, is the big-kahuna of statutory disclosures. There are many others of course, but this bit of legalize is the cornerstone of the disclosure package. It is on this form that the seller has the opportunity to share historical information on the property — what fixtures exist or don’t, what works or doesn’t, and what skeleton’s may be found in the walk-in closet. It is a three-page check-box, fill in the blank kind of document with a few lines thrown in to allow elaboration. Few sellers ever elaborate.

We are often asked, “Do I have to disclose this or that?” And our reply is always, “If you have to ask, then yes, you do.” In my experience, no buyer has ever canceled contract because a seller was too thorough. And I can all but guarantee you that if you don’t disclose that time that the toilet decided to become a drip watering system for the living room, your buyer’s future neighbor will. In fact, a TDS for an 18-year-old home that suggests everything is and has worked perfectly since the builder delivered the first set of keys is often eyed with suspicion.

The Moment of Truth

So our sellers possessing, an awe-inspiring attention to detail, delivered a TDS to the buyers in which they had taken full advantage of every inch of white space. If this wasn’t enough, they included self-penned Addendums A, B, C, and D totalling, I believe, ten pages (double-sided). If a light switch had been replaced during the Clinton administration, they noted it. Busted faucets and dirty air filters of yore, leaning fence posts, and a closet door that hasn’t always stayed dutifully in the track? Guilty as charged. The buyers response, while predictable to me, served as a good refresher course for fair dealings. The buyers were appreciative, dazzled in fact, and as a consequence, they were convinced that there would be no surprises after the mail had been forwarded.

In this case, the result was that we did not receive a Request for Repairs. No home is perfect, but the buyers asked for nothing, nada, zip, which is practically unheard of in this environment where every buyer seems to be out for revenge, out to right the wrongs of the early 2000s. The buyers’ agent attributed this to the trust that had been won when the seller threw the book at them, so to speak.

My takeaway from this latest transaction is that honesty wields great power. No one wants to believe they are being taken advantage of or being played the fool. People respect those who treat them fairly, and openly disclosing all you know about your home is one way in which you can demonstrate this respect for the other party in the transaction.

Of course, it also helps when your price doesn’t include an extra zero.

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Monday morning musings… Is it Summer yet?

by Kris Berg on June 30, 2008

Single Ball
Creative Commons License photo credit: audi_insperation

St. Paul’s Teresa Boardman answers the question this morning, “How is business?” “It’s like running through mud,” she says. A country may separate us and our markets, but I have to agree with her spot-on synopsis.

Never was this an easy business, yet never has it been more difficult. I remember the first transaction in which I was involved that resulted in cancellation. “Falling out of escrow” was a concept I had heard of, the stuff of folklore, but I had never personally experienced it. Some five or so years later, and agents tend to breathe a sigh of relief when the transaction doesn’t fall apart.

The difficulties we are having are mostly but not entirely market driven. First, there is the purchase contract we started using in California several years ago. This may not seem like a big deal on the face, but it really served to change the attitudes of buyers in the transaction. The previous contract had a “passive method” of contingency removal whereby time frames came and went and, absent objection in writing, a contingency was deemed waived once the corresponding date on the calendar was a memory. Now, our contract by default assumes an “active method” of contingency removal; a buyer must affirmatively remove contingencies in writing. Absent written removal, contingencies remain in effect. The result has been that reasonableness tests have gone out the window. Buyers now tend to view their contingency period as a “free look,” a dating period, and there is generally no feeling of obligation to justify dumping you, the seller. Think of this shift in buyer attitude as similar to a shift in cultural attitudes, one which suddenly made it easy and OK to divorce. Commitment is an elusive partner.

Then, there are the market conditions. More choices and more time for the buyers to make their choices: These are good things, reminiscent of a more stable market. Yet, I am seeing what is arguably a less healthy trend. Our multiple offers of yesterday have been replaced with reverse-multiples; it is becoming fashionable for the buyer to offer on two or more homes at once, an exercise of throwing a bunch of contracts at the wall to see which, if any, may stick. This involves more work for everyone, and it involves more stress for everyone.

Market conditions are playing a huge role in escalating the degree of difficulty for all involved. We are with our buyer clients longer, sometimes months or even a year or more. So many choices and so many economic and pricing fears, and the decision to purchase is longer coming — if it comes at all. The homes of our seller clients remain on the market much longer. Not only does this add very real costs to the agent’s bottom line, but emotions and stress levels of all involved tend to increase in proportion to the number of days without a sale. Try keeping your own home in show condition every minute of every day for six months or longer. It will wear on you. And, sometimes the sale never comes.

This year, like all of the years before, I heard sellers saying that they would wait for the Spring/Summer rush before listing. I also heard buyers saying that they would wait until the peak Summer buying season had passed before looking in earnest.

Here we are today, our last chance at June, and I am wondering when exactly this “Summer” peak is going to kick in. By all accounts, it isn’t. Our typical, expected seasonally variations have been trumped by the bigger market card. Take Scripps Ranch:

Teresa says she is walking through mud in St. Paul. In San Diego, our seasonal home sales have been slower than molasses, and I often feel like I am beating my head against a slab granite counter top.

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The MLS: An offer of compensation, not a contract between principals.

by Kris Berg on May 21, 2008

DSC00263.JPG
Creative Commons License photo credit: maveric2003 

This issue rears it’s ugly head on occasion, and I saw it happen yet again. The Multiple Listing Service property input included moveable appliances in the “equipment” category, the subsequent (accepted) offer did not include the washer, dryer or refrigerator as personal property to convey, and at close of escrow the buyer was surprised to find big, gaping voids where these items once resided.

It’s you old “theirs versus ours” dilemma. We have a brief rundown of items which are considered fixtures versus personal property here, but it is worth repeating. When it comes to the stuff in the house, fixtures convey unless they are explicitly excluded in the contract. Personal property, on the other hand, goes away with the seller’s U-Haul unless specifically included. In between, there is a vast gray area.

The popular test for fixture versus personal property is the method of attachment, and even here you can get yourself into some trouble. If the bookshelves are attached with eighty-seven anchor bolts, the buyer will soon be assuming the dusting duties. On the other hand, if the eighty-seven photos in the hallway recounting the building of Fenway Park are affixed with penny nails and coat hangers, the buyer can (thankfully) kiss these good-bye. A simple toggle bolt can send everyone straight to mediation, so it is better to write the pot rack in or out just to be sure.

This is the language in the current version of the California Association of Realtors Residential Purchase Agreement (updated hourly):

NOTE TO BUYER AND SELLER: Items listed as included or excluded in the MLS, flyers or marketing materials are not included in the purchase price or excluded from the sale unless specified (below).

ITEMS INCLUDED IN SALE:
(1) All EXISTING fixtures and fittings that are attached to the Property;
(2) Existing electrical, mechanical, lighting, plumbing and heating fixtures, ceiling fans, fireplace inserts, gas logs and grates, solar systems, built-in appliances, window and door screens, awnings, shutters, window coverings, attached floor coverings, television antennas, satellite dishes, private integrated telephone systems, air coolers/conditions, pool/spa equipment, garage door openers/remote controls, mailbox, in-ground landscaping, tress shrubs, water softeners, water purifiers, security systems/alarms.

Of course, every item in this list is here because someone at some point tried to pack it up on their way out of Dodge. As goofy as some of these items may seem, Steve and I actually watched with amusement as a neighbor, during his escrow (not our listing), started removing palm trees from his front yard under the cover of darkness. We had to assume that they had some sentimental value. And, don’t gloss over the word “existing.” We even had one situation where our buyer came to the final walk-through and found that light fixtures, switch plates and even the microwave oven had been replaced by not-so-like likenesses.

Now, back to the fridge. No one can argue that a refrigerator is a fixture. In other parts of the country, it is quite customary to ditch the appliances when selling a home. In San Diego, however, it is more common to take them with you. The MLS is an offer of compensation to the broker who brings the buyer; it is not a contract between principals. The MLS remarks may indicate that the home comes with the washer and dryer, the Toro lawnmower on the side yard, and a pony, but unless the buyer writes these things into the contract, it is being taken strictly on faith.

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