Today's Topic...Ambiguous Contracts

Question: What makes an Ambiguous Purchase Agreement?

Answer: All managers and brokers have a supervisory duty to review all contracts their respective agents have written on behalf of the buyer, or has received for review when representing the seller. One of the very first things I look for in a purchase agreement contract is, to see if it's binding. "No loopholes." The most common mistake I find is the contract has ambiguous language or the some components were left unanswered.
There are many components and clauses that make up the California Real Estate Purchase Agreement and Joint Escrow Instructions today. Let's look at several of the basic elements that help to create a purchase agreement (contract).

1. Names of the parties
2. Dates and performance dates
3. Address or legal description
4. Agency (who represents whom)
5. Price
6. Time frames
7. Financing
8. Outside services, etc.

There are many more elements to a purchase contract, as well as the language of the Counter Offer(s). Every contract is as different as the people buying and selling. However, back to the question..."What makes an Ambiguous Purchase Agreement?"

1. The definition of ambiguous is having more than one possible meaning or interpretation.
2. The definition of contract is a formal or legally binding agreement (e.g. for the sale of property), or a document that records a formal or legally binding agreement.

The most common error agents make when writing a purchase contract is the use of "Best Prevailing Rate." What is the best prevailing rate? Who knows? It could be 4% or 15%. This cannot be left for interpretation.

On the front page of the purchase agreement, Item #3, C, 1 provides spaces to be filled in (rate, term and cost) and if it's a government insured loan, who is to pay and how much.

Another common ambiguous error agents make is the use of "Seller Choice" in lieu of the specific service. The lack of naming specific services - such as, Escrow, Title, Natural Hazards Report, Home Warranty and Termite Companies.

The listing agent can easily correct this on the counter offer by writing the specific names of the vendors to be selected. Once the buyer signs the counter offer, the buyer has agreed to the services and the contract is tight and binding.

The best written purchase agreements and counter offers address all of these items. There are 30 items contained within the California Purchase Agreement and Join Escrow Instructions and more if a Counter Offer or Addendum are incorporated into the contract.

For more information on Ambiguous Contracts or any other real estate topics, give me a call! 714.626.8880

Who's Painting the Real Estate Picture?

The new buzz word of today is Media. Media says this or the media says that about our Southern California real estate market. As if their generalizations and spins on the topic are the only source and gospel for your specific region of the country. Who is really painting this picture? It's an election year and do you think someone might want to have a rosier picture painted?

Is the market going up? what's going on in the market? I get asked these questions almost everyday. The best part of this story is...the question is always asked with hope in the voice and in the eyes of the person asking the question (we all want things to get better).

The answer is not as simple as one might think. As I have mentioned in previous writings, "there are 10 major markets under $1,000,000 in Southern California."

The hottest market right now, and most likely will be through August of 2013, is any property in fair to good shape, a standard sale or REO sale (bank owned) and/or priced under $435,000! First-time buyers and investors are having bidding wars over these homes.

One of the biggest contributions to the high demand in this price range is the lackluster interest in the short sale market and the tremendous shortage of good inventory.

Many of the buyers in this price range have had enough unsuccessful experiences with the "Short Sale" process. They now understand that the short sale process is not for the faint of heart.

An extremely high short sale fall-out rate is due to many unforeseen factors including, but not limited to, the overwhelmed bank processing centers, no clearly established guideline/underwriting polices to follow, inexperienced listing agents and non-licensed third party negotiators hired by listing agents. Another factor is that many sellers who have assets and good jobs don't want to continue to pay for their homes when they are so far under water.

There are six real estate markets above this $435,000 price range. There is a different story regarding how hot the market is and whether prices are going up, stabilizing or sliding.

All good sailors know there's a smoother ride with the wind at their back. In this metaphor, the six higher-end markets may still have the wind in their face and some rough waters ahead before they see calm waters.

The move-up buyer is more wary than ever before, as they should be during these uncertain times. Unemployment, cut backs, and layoffs are the news of the day for a lot of professionals. Most move-up buyers will purchase upward in price 1 1/2 times from what they've sold their home for.

Here's an example: Buyer A sells their home at a sales price of $500,000 (1.5 x $500k), they will purchase around $750,000 or less. Buyer B sells their home at a sales price of $600,000, they will purchase around $900,000 or less. And so on...

Comments I'm hearing from the higher-end buyers are: they aren't seeing that dramatic of a change of neighborhood, school, or square footage to entice making an offer. Additionally, these buyers have a new found perception of value that is far more ostentatious than in years past. These buyers want and are getting more bang for their buck! in these higher end markets, larger down payments, good credit and high incomes are the norm. These buyers are the ones who are scarce in the market.

What is the market doing in these higher priced markets? A: Sliding slower, but still sliding.

The tough problem is, like that of the below $435K market, there is so little "quality inventory" to compare to. The middle of the road high-end properties are what's helping to drive the high-end markets downward in price.

Now a top condition properties with modernized upgrades and good location is selling fairly quick and at a good price. Some things never change. A quality home will always draw that A+ buyer, who will see its true value over mediocrity.

The same goes with Real Estate Brokers. When I'm giving real estate advice, I try to paint the truest picture of the market that I can. With good advise and information comes good decisions.