Whether you are selling a home or buying a new one, the contract is arguably the most important part of the transaction. Having recently been updated from 4 pages to 12, the Florida FAR/BAR contract is daunting to say the least. Most agents use the AS-IS version or the Conventional of the contract, but truth be told, most have never fully read it.
Did you know that the training an agent receives in real estate school barely covers the ins and outs of the contract? They basically fill in the blanks and hope for the best. What they fail to know are the loopholes or procedures for when things go wrong or when a remedy is necessary. For this month, I wanted to go over a few of the major points that often come up during a transaction, that can cause a deal to go south and, in some cases, cause the loss of escrow.
One of the biggest misconceptions regarding the AS-IS contract is that it’s cut and dry “AS-IS”. Sellers interpret the contract as if the buyer may inspect but that they are taking the home in its current condition. While in fact that is technically true, over the years, agents have pretty much used this contract as a way to ask for unlimited repairs on a home, by threatening to cancel the deal if they don’t get what they want. The only recourse a seller has in many cases is to throw money at the problem or dig in their heels and hope the buyer capitulates. I find it personally frustrating when buyers’ agents come back with a laundry list of repairs after the seller has been clear that they will not make any repairs. It causes a lot of turmoil and is usually where deals first fall apart. So, what can you do? Well, as in most things, communication is key. As a seller, via your agent, you need to clearly state your expectations. Let the buyers know you will not be open to a bunch of repairs and that you will be soliciting back up offers. If you want to get ahead of the game, some sellers have taken to doing a pre-listing inspection and addressing issues prior to listing so that they can negotiate properly. Think about it. If you negotiate as low as you can go and then end up with 5K in repairs, your deal can blow up. You have to think like a buyer and assume they believe that after inspections, the next step is to negotiate repairs. It’s truly a flawed system and one you need an experienced agent to guide you through.
The next is the loan approval process. This part of the contract has blanks that default to values if left blank. Never leave them as-is on your deal! A good agent will talk to their lender and get more precise information, especially when it comes to the days for loan approval. If left blank, it’s 30 days. This is a big cut-off date because that is when the escrow deposit for the most part, becomes non-refundable. Be smart if you are the seller! Get that number for approval as low as possible. Most lenders can do it in about 21 days or less. The default is 30. Also, be sure that the 21 days also includes the appraisal, as a low appraisal can override a loan approval. My goal is to keep things moving along and to tie up loose ends as quickly as possible so that the seller can start the moving process with confidence. Failure to do so can result in a deal blowing up a few days before closing, with a seller fully packed and ready to move. That’s never a fun situation! Finally, and perhaps the most important is to get a decent escrow deposit. It should be a minimum of 1% or at least enough that someone is not willing to walk away from it. Make sure the buyer has “skin in the game,” because if you have to start over, you want to make sure you have that deposit to ease the pain! Happy selling!