I had a confidential Ask the Broker question this morning, believe it or not. Glossing over the whole thing, the listing agent could have avoided the entire problem with this language in a counter-offer:
Buyer is aware that seller reserves the right to cancel this contract unilaterally and without recourse within ten days of acceptance, with earnest deposit refunded in full to the buyer, if the projected net proceeds to the seller from this transaction will not satisfy seller’s entire costs.
In other words, if it’s a short-sale, it’s a no-sale. I don’t know if this sort of contingency is common in other states. It’s not in Arizona, but it should be right now. Our contract is written with almost no outs for the seller, which I like, but it is entirely possible right now that sellers could be ham-strung by a deal they can’t afford to honor. Agency is looking out for the disasters no one else foresaw…
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Maureen Francis says:
Not so sure that I agree. The sellers costs are fairly easy to calculate. A seller’s net sheet, submitted with an offer, should give the seller a pretty good idea of what he/she will net. The last mortgage statement gives a fairly close approximation of what is due on the note. In MI, property taxes are paid in advance, so the seller receives a credit for taxes. I get a quote on title insurance when I take the listing.
The seller should know approximately what he/she is going to net long before an offer comes in. Yes, it will change with the specific offer, but usually those changes are marginal.
If this 10 day clause were to be presented to me as a buyers agent, I would recommend against it. Why should my buyer go to the expense of a home inspection and commit to a mortgage when he seller may back out? I would be happier to have the seller wait to respond to client’s offer until after he has taken the time to determine if he can afford to accept the offer. If this means getting the bank on the phone on Monday, I will wait.
November 24, 2006 — 8:37 pm
Greg Swann says:
I agree with you in principle, Maureen, but things can happen — for example, a pre-pay penalty the sellers didn’t recall. The situation I am addressing here is real: The buyer has every right to proceed on a contract the seller can’t afford to honor. I agree this is the listing agent’s fault, but I could see a contingency like the one I wrote as boilerplate language in a default contract. If you want to reimburse the buyers for inspections or the appraisal, that seems perfectly fair to me. Making the deadline two business days is also fine with me. All that notwithstanding, the sellers have a defensible interest in a case like this, and it’s up to the listing agent to defend it.
November 24, 2006 — 11:04 pm