This week, Jim Reppond discusses creative strategies sellers can use to entice buyers to their home. Learn about the return of the “contingent sale,” and other valuable information in this informative podcast from the Seattle Specialist.
Read the Transcript
Jim Marks: Hello and welcome to the Seattle Real Estate Podcast. I am your host Jim Marks of Virtual Results, and with me as usual I have Jim Reppond, Founder of the Reppond Team; the Number 1 producing Coldwell Banker Bain Team in all of Seattle and the man we have come to call Seattle Specialist. Jim, it's great to have you back.
Jim Reppond: Nice to be here.
Jim Marks: The Seattle Real Estate Podcast is the perfect way for our listeners, both buyers and sellers to stay on-the-pulse of the Seattle estate market and as this market changes I thought our listeners might be interested in some advice on things they can do as a seller to help a qualified buyer purchase their home. Now, in a conversation you and I had a few days ago, I heard you mention a phrase I haven't heard in a very long time, a “contingency sale”. Now, in the huge buyer's market of over the past four or five years contingency sales were very rare, now Jim, tell us, are they back?
Jim Reppond: Well, yes. We have seen a number of them and they are a great opportunity for a seller to get their property sold in off the market.
Jim Marks: So, why are we starting to see more contingency sales in the market place?
Jim Reppond: As we see the market changing and it is becoming more of the buyers market the sellers are looking at any opportunity that will get their property sold and they should take any qualified buyer who comes along, seriously. On the other side of the coin, if you are a buyer and you have got a property that you need to sell before you can purchase a home, you might be a little bit more nervous if the days on market time is expanded and extended out, so that you are not sure if your home is going to sell in the period of time you need it to in order to close this transaction. In the past, people would just assume well I'll buy this house and, of course, I will sell in a few days and I don't need to worry about it. Well, the markets are a little different now and there is a little bit of hesitancy out there and, gee what if mine doesn't sell and so a contingent offer is — we are seeing more of them come in and we are seeing more sellers review them and take them more seriously.
Jim Marks: Contingency sales are obviously more complicated than a straight sale, what are some of the pitfalls, for buyers and sellers who don't have knowledgeable agent negotiating for them.
Jim Reppond: There are many pitfalls, it's a dangerous waters to be in, if you are not familiar with all of the forms that are involved with it. There is a sort of a attitude when you get a buyer coming along and saying well, that sounds great, we will work out the details later. Well you need to work out the details at the time of the offer otherwise you are going to find yourself constrained and in a situation where oops gee, I wish I hadn't agreed to that, it's very important that you have a agent who understands the new answers of these forms.
When you take a contingent offer here in the Seattle, actually Washington area, the forms now are going to be going statewide it was just northwest multiple listing service, but that's changing it will be all of Washington realtors, you need a Form 22B and that's the Contingency Addendum and there are a number of things in there that you need to fill in and some things that you need to be aware of that can make a difference. The first one is that this buyer of the property has a 45-day period unless you change the default to sell their property and if they don't sell it in that 45-period, the transaction becomes terminated.
Now, I just want to jump in and say, I am not going to be giving legal advise here I am not an attorney but I am just going to be explaining some of the things that go along with the form, so you have any legal questions around this you need to consult an attorney and don't rely on what I am saying here, all of this stuff is important and it's really critical that you have your property listed with a licensed real estate agent, like it says in the contract that you will have it listed five days of mutual acceptance after you go into a contract here or agreement will terminate and you will lose your earnest money, so you need to be aware that you have to do some of this.
So, couple of other important things that you need to be aware of is that you need to notify the seller within 12 hours, of taking an offer on your home, no later than 24 hours it actually says but it also says in the contract within 12 hours if it all possible and if there are things involved with that transaction, for example of the offer you took is a contingent offer itself you have to get the written approval of the seller before you accept it, or again you could lose your earnest money.
So, there is a number of things involved with actually even just taking a contingent offer and that the buyer needs to be very carefully aware of it and that the seller may want to change some of the boilerplate language here at least, but fill in the blanks of how long and that kind of stuff, so that they are in control.
Jim Marks: Now, also tell me a little bit about Form 39.
Jim Reppond: Well, Form 39 is a specific form that you give to the second buyer and this one is a critical form because the one thing that you don't want to hit start doing is as a seller is selling your home twice and that's not a situation that anybody wants to get in although I'd loved to have a phone call from a seller that said, “Hey, I heard you sold his home a couple of times and therefore I want to list with you.” Just joking, seriously what you need to make sure and that happens is that the Form 39 is attached to the second buyers offer and that just clarifies that their offer is a second offer and it's subject to the other transaction terminating and not moving forward, that's critical, there are some specific language in there that you need to be very careful about.
You also want to make sure that when you are taking this other offer that you are getting some of the contingencies taken care of, you don't want to say, okay, well I am going to tell the first buyer to go away and you will have this first buyer who hasn't done an inspection, has a bunch of other contingencies in there where they might just walk away when your first buyer was a pretty solid buyer. So, there are several things in there that you kind of want to tick off and be careful about, but you need to have that Form 39 attached to the second offer, or else you are in position where you sold your home twice.
Jim Marks: Understood. Now in a contingency sale it's important to note that seller basically has two buyers he is got a primary buyer and a backup buyer. What kind of things can you do, are there any strategies that the sellers can use to make his second buyer feel good about the transaction keep him at ease?
Jim Reppond: Well there is because, one of the things you are going to want that second buyer to do is waive the inspection. At that point the buyer is going to say, okay I am putting X amount of dollars down as earnest money, but that's subject to all this other stuff so I will get the earnest money back, if it doesn't move forward, but you are saying go ahead and do an inspection, which is going to cost me $400-500 maybe and I might not even get the house, why would I want to spend that money now when I don't even know.
So, a strategy we have come up with which usually really helps a buyer get comfortable about that is that the seller says you know what I will reimburse you that money if this transaction ends up not going forward and the other first buyer ends up taking the property, and that's just a little insurance policy it does become a seller expense, but it gets that buyer comfortable coming to the table and say okay then I don't have risk involved here by saying I will just have the inspection done and then wait so that we got a solid transaction, that's a great strategy for both sides because I firmly believe it's in the sellers best interest to have both buyers very strongly committed and then one of them is going to be the one that ends up getting a home.
If you got one buyer that's hanging out there going well but you know I can't still do an inspection and if I don't like it can get out of the transaction, you don't want to end up defaulting to that one and than going away and you have two buyers and now you have none.
Another important part of the sale is when the contingency actually gets satisfied or waived and a lot of agents as well as buyers and sellers aren't aware of the new answers of what that means, when a property is waived or contingency is waived, it's because the seller has told the buyer, hey I have got another buyer, buyer Number 2 and buyer Number 1 says, you know what, I haven't sold my property yet but I am going to move forward anyway, I think I can either — I have got enough cash or I have got a home equity loan, or I think it will sell anyway and I am willing to risk my earnest money.
So, I am waiving that contingency and moving forward regardless of the fact I haven't sold my home yet. When they do that, when they waive the contingency they are also waiving all of the other contingencies or subject tos, if you will, in a transaction so they no longer have an inspection contingency, they no longer have a financial contingency, and they no longer can use the seller's disclosure statement as a way out. They have committed them selves to closing the transaction or they will lose their earnest money, so that's a big deal.
On the other hand, if first buyer says hey well, good news, I have sold my home I am going to move forward and I am satisfying the contingency here, it's considered satisfied, then if something happens with the seller home the financing didn't go with their buyer or inspection didn't go, whatever then they can come back and say oops I am sorry, it didn't work out here is a notification that it didn't work out but I get my earnest money back.
So, there is a difference there in terms of what contingencies stay and what get completely waived, it's very important that a seller understand those liabilities and risks, when they are getting what we call bump response or contingency response to buyers number one and two.
Jim Marks: Understood, Jim that's all great advice. Now it's been a couple of weeks since our last Podcast and as usual that we want to keep abreast of the Seattle real estate market, current trends, time on market, things like this, basically how is the market changed in the last couple of weeks.
Jim Reppond: Well that's interesting in the couple of days, we have noticed that inventory is starting to tighten again a little bit, so that will be interesting to see because we had been seeing and expanding inventory for the last two three weeks, and then all of a sudden the last two or three days, the new number of listings on market has shrunk down, we are trying to figure that out what that means, but what we are always sure of this when there is less inventory, buyers need to make decisions, because you don't need; you know, if it continues to constrain options go away and for example I have a California buyer who is looking at a couple of different condos around here, well if those get sold then there is not new inventory coming on the market, their options, they have to go to a secondary and tertiary choices of what they would have wanted.
So, yeah, we are still seeing a lot of sales, our market thank goodness is the best in the United States right now, so can't complaint with that, it's a little slower than it used to be but gosh, we are not hurting like a lot of areas are, yeah, we still got a very active market the economy is growing leaps and bounds here in Seattle, we have got a very constrained amount of inventory because you know geographically there is just no place to build more properties, you know with that demand and that limited inventory we are still looking pretty good.
Jim Marks: Well, that sounds like great news for both Seattle Real Estate buyers and sellers. That wraps up this episode of the Seattle Real Estate Podcast. Before we finish, I would like to remind our subscribers, that they can also influence the content of this Podcast by submitting questions or suggestions for topics for this real estate Podcast to the Reppond Team Blog at http://www.seattle-realestate.com/. Jim, again, a very informative Podcast and thanks so much for your time.
Jim Reppond: Oh, you bet Jim, I look forward to next time.
Jim Marks: This has been the Seattle Real Estate Podcast featuring Jim Reppond. Thanks for listening.