Archive for the ‘Contract Law’ Category

In my analysis of the market as a real estate expert witness experience,  the answer would be a loud NO.   This is an incredible time to buy but with all the negatives in this market,  I think too many agents are unwilling to be honest with the buyers that it takes a strong stomach to play the game right now.

I think that buyers need to be taught about the down-sides of the market before they take them out to look at house.  Buyers are programed to want to look at distressed properties but really don’t understand, especially if they are first time buyers.  So,  make it your policy that you counsel with them upfront.  Here are some of the issues that they need to buy into:

• Except for the high end,  most properties sell with multiple offers and many times over list price.  Are they ready for this?
• Are they aware that they will be competing competing with cash investors, especially if they are 3.5 % down FHA buyers
• Distressed properties are not always good deal.  Too often buyers think they are going to steal a property 20% below market.  Run SOLDS in your market place and show the buyer what the typical LIST PRICE TO SOLD PRICE ratio normally is.  Even in this market it is about 3-5%.
• To often,  inexperienced buyers think the answer is BANK OWNED property. I guess it is if they understand the risk they are taking.  You normally write the offer using a CAR purchase contract which includes great language to protect your buyer.  But,  when the REO bank counters back with their famous ADDENDUM,  the buyer give us almost every right they got in the CAR form.  And,  too many agents do not take the time to explain the terms of the ADDENDUM,  which is even more dangerous.  I hope I never have to testify as a Expert Witness against the agent who failed to explain this to their clients.
• What about REO inspections:  How often does a buyer go into contract, only to find out the property is a dog and the lender won’t fix anything?  How do you explain the $1000 in inspection fees the buyer has wasted?
• Then there is short sales.   I don’t know how often I see an offer from a buyer’s agent who ask that it be closed within 60 days or their offer asks for the Seller or the Bank to pay for something that we know upfront tha the lender won’t pay for.  And,  how many buyers are really willing to wait 5+ months,  only to find out the lender wants them to pay more than their offer

Look the reality is that this is a distressed property market.  All I am saying is,   make sure the buyer understands.

More next time……..

As an expert witness in numerous real estate litigation cases,  at least once per year,  I run across a case where a non-refundable deposit is one of the issues.

The first question,  why do agents ask for the deposit to be non-refundable?  In most cases,  the seller wants to tie the buyer in with this strong language.  My experience is that on residential property, non-refundable is not enforceable, even if the buyer agrees to it in the contract.   CAR recently published a California case that might give us some clues on this interesting issue.

The Case is Kuish v. Smith, (2010 WL 373225).  The case involved a $600K+ deposit on a $14 Million ocean front property.   Instead of using the Liquidated damages clause in the contract,  the parties agreed that the whole deposit would be non-refundable.  In the trial, it was argued that the parties were “big boys” who understood business and the risks involved.

As you can imagine,  the buyer eventually canceled the transaction. The Seller  refused to release the deposit even though they resold the property to someone else for one Million more.  The Buyer sued for return of their deposit.

The court found on appeal  that by making the deposit non-refundable is in essence creating a Liquidated Damages clause,  even though neither party signed one.  And,  under California law,  the most a seller can keep is 3% and that would only apply if the seller was actually damaged.

You can imagine that the Seller was unhappy with the outcome and probably blamed the agent for the unenforceable language of the contract.

If you would like to discuss this case or my work as an expert witness, contact me at: http://www.guyberry.com

I have had a couple of cases as a real estate expert witness,  where the property was under construction.  Not a new house but one that was being substantially remodeled.   And,  the Seller,  instead of waiting until the work was done, put it on the market with half of the work to be done.

The problem is that the purchase agreement doesn’t anticipate this situation,  so would take a fair amount of changes and additions to protect the buyer.

Let’s think through the process.  The buyer has a flyer or something telling them what the seller is going to provide to them at close of escrow.

First,  where in the contract,  not the flyer,  does it says what the buyer is going to get? Depending on the extent of work yet to do,  the buyer’s agent is going have to provide some language which makes the contact contingent upon an agreeable materials list within x days after acceptance.  Which leads to the next problem

Secondly,  assuming we made the contract contingent upon the buyer seeing a list, who is going to provide that list and is it detailed enough.  My experience is that contractors are a little vague here on purpose.   Yes,  it is going to have granite counters but what quality.  You can buy a $99 toilet but quality toilets cost $300-400.   I can get a faucet for $49 but a good one would cost a lot more. What kind of interior doors are being installed.   What about molding.  Is there crown molding?   What size?  In every room?  You can see that the questions are endless.

The third area is more practical than legal.  It is how much control does the buyer have about choosing materials.  Can they pick the cabinets,  light fixtures,  paint colors,  appliances, etc, etc.   The best way might be for the seller to provide an allowance,  such as $1,000 for light fixtures.

As you can see,  this is tricky and I don’t want to meet you in court when I am testifying as an expert witness in the lawsuit.

Contact me if you have more quesions:  http:www.guyberry.com