Buyer/Seller Tools

Legal Considerations:

The following is for informational purposes only and is not intended to be relied upon as legal advice. Should you desire legal advice please consult with your attorney. The information given is intended to give general examples of legal consideration which may or may not occur during the sales process. Should you wish additional information about the sales process please feel free to contact me.

LISTING
Typically, brokers use an Exclusive Right to Sell listing agreement which binds the seller to work exclusively with one specified broker.

Typically, listing agreements are for 180 days, but the length of the listing period is negotiable.

The listing agreement spells out the amount of commission (typically a percentage of the sales price) that will be paid to the broker upon the successful completion of a sale. Brokerage commissions are negotiable and typically range between 5% and 6% of the sales price. Beware of discount brokers charging less than 5% as their expertise, advertising, professional services, etc. may also be below average as well.

Typically, the listing agreement will specify whether you want a lock box (not recommended for high end properties), for sale sign posted, input into the multiple listing service (highly recommended), etc.

Typically, listing agreements state that the broker will use due diligence to advertise and sell the property. Please refer to my marketing plan for further details about all the things I can do to market your property.

A preliminary title report should be obtained early on to be sure "clear title" will be provided to the buyer. The "prelim" should be obtained as soon as possible so that any clouds on title can be removed right away and not hold up or jeopardize a deal.

OFFER
Typically, an offer is received on a pre-printed California Association of Realtor ("CAR") Purchase Agreement form. This form contains provisions to numerous to address in detail here. But, some of the principal terms include: a description of the property, purchase price offered, length of the escrow period, financing terms, contingencies (such as loan, appraisal, physical condition of the property, title, etc), allocation of costs (such as termite inspection/repairs, escrow fees, title insurance, proration of taxes, etc.), personal property included or excluded from the sale, liquidated damages, arbitration, and buyerıs signature.

It bears noting that any agreement for the purchase or sale of real estate must be in writing signed by the party to be charged/bound... verbal agreements to buy or sell are not enforceable!

Typically the buyer provides his agent with a deposit check (consideration supporting the offer) in the amount of 3% of the asking price (although the amount may vary). The check is held uncashed until the offer is accepted by the seller, and then deposited with the escrow holder/company.

The offer may be accepted or countered by the seller. Typically, the counter offer accepts all of the terms of the original offer except the new terms set forth in the counter, i.e. a different price, shorter escrow, etc. The buyer may then accept the counter or counter back again... until a final agreement is reached and signed by all parties.

To an experienced agent, the terms offered by a buyer often provide subtle clues about their motivation and ability to perform/close the deal. For example, a 10% down payment may make an agent question the buyerıs ability to finance the purchase or qualify for a loan. Whereas a buyer putting down 50% would appear to be very strong financially.

ESCROW
Once an agreement has been reached, escrow is opened. The choice of who will be the escrow holder is open to negotiation between the buyer and seller. Be sure the escrow company selected is a licensed, reputable company as they will be holding the money, assembling all the necessary paper work to close, co-ordinating loan payoffs and preparing and recording grant deeds and other title documents.

THE ESCROW PERIOD
During the escrow period numerous things happen. Please note, the time periods listed below are typical but are often modified by contract or through the dealings of the parties. They are given by way of example only. Some of the highlights include the following.

The buyer, if he hasnıt done so already, should immediately begin working with his lender to be certain that the necessary financing will be obtained in a timely manner.

Typically within 7 days of acceptance, the buyer will provide written verification of his down payment and closing costs (i.e. by bank or financial statements, etc.).

Also, typically within 7 days of acceptance, the seller will provide the buyer with certain documents and disclosures including, but not limited to, a Preliminary Title Report ("Prelim") and Real Estate Transfer Disclosure Statement ("TDS").

The "Prelim" will show the status of title and may reference recorded easements, encumbrances (i.e. unpaid taxes, assessments, etc.), covenants and restrictions, etc. A survey with plotted easements and the underlying documents (deeds) may also be requested to help clarify any issues regarding title.

The TDS is intended to disclose to the buyer any facts known by the seller that might materially affect the value or desirability of the property, i.e. un-permitted room additions, significant roof leaks, a death in the home, cracks in the slab, landslides, mold, etc. This document should be carefully completed and full disclosure should be made to avoid possible problems later on should the buyer later discover that a significant problem was not disclosed.

Typically, the buyer will have 17 days from acceptance to inspect the property and review and approve all disclosures and reports received from the seller. Typical buyer inspections may include a home inspection (systems and appliances), septic tank inspection (recommended in Malibu), geology (as necessary), structural (as necessary), mold (as necessary), survey (as necessary), etc. In my opinion, inspections protect both sides and are highly recommended.

Typically, a termite inspection will also be performed. Typically, the seller pays for the inspection (although this is negotiable), and any section 1 termite work. Section 1 means visible areas of infestation or dry rot. If more invasive work is needed, like opening up walls, etc. then this so called Section 2 work is typically paid by the buyer. But, who pays is all negotiable. Most lenders will require a termite clearance confirming that the property is free of active infestation before funding a loan.

After completing inspections, the buyer may approve or disapprove the physical condition. If the buyer disapproves, he may cancel or may request that certain repairs be made or credits be given. If repairs or credits are requested, the seller and buyer must then negotiate what repairs will be done or what credits will be given. If the seller says no, then the buyer must decide to take the property "as is," or cancel the deal.

Typically, within 21 days the buyer must remove in writing his loan and appraisal contingencies. Thus, the buyer will want.

Under the current CAR contract, contingencies must be removed in writing or they remain open. For example, assume that the buyer has 17 days to inspect the property and approve of its physical condition. If, on the 18th day, he hasnıt sent the seller written approval or disapproval, the seller may not automatically cancel. The seller must first send the buyer a notice to perform (typically within 24 hours), then if the buyer still doesnıt remove the contingency the seller may cancel. Otherwise, the buyer may remove the contingency after the 17th day and not be in default.

If, after the removal of all contingencies, the buyer does not perform, then the seller may cancel the contract and, where a liquidated damages clause has been signed, keep the buyers deposit as agreed upon damages. If such a clause has not been signed, then the parties will have to either settle upon agreed damages or litigate the issue.

Toward the close of escrow, the escrow holder will interface with the buyer's lender and purchase monies and loan funds will be deposited. Typically, the funds are delivered by wire transfer. The escrow holder will also interface with the seller and title documents (such as a grant deed transferring title) will be signed and notarized.

Once all the necessary paperwork has been signed and funds deposited with escrow, escrow will send the title documents to the County Recorders Office for filing. Once filed, escrow may then close.

Typically, the buyer will take possession on the close of escrow. But occasionally the seller may lease back the property usually for an amount equal to the new buyer's carrying costs (but terms are negotiable).

The new buyer now enjoys the benefits, tax advantages and appreciation of home ownership, and the seller can enjoy the profits for his sale!