Strangely enough, we are actually using escalation clauses in offers again.

An escalation clause is used when you are in a competitive offer situation, and you want to make sure that your offered price escalates over other offers. There are several ways to structure these, and there are actually two types of clauses…one that can be used multiple times and one that can be used only once. For Example:

You offer $500,000 for a property, but will escalate over any offer in $5000 increments up to $550000.

This can often secure obtaining the home; however, it can backfire as well.  Some listing agents look very carefully at escalation clauses and will not just accept the highest escalation. An experienced listing agent knows that if it escalates too high, there is the possibility that the home will not appraise, and then the deal needs to be renegotiated (unless the purchaser is putting a lot of money down and would be able to close at the offered price regardless of the appraisal). There are other things that listing agents look out for when they see these clauses and it doesn’t always put your offer at the top of the list. The point is, work with your agent to carefully structure your offer in a multiple offer situation and give the best offer that is still appropriate for the area based on past sales. This is a very dumbed down explanation, but hopefully gives some insight into what the market is doing and how to be savvy in the midst of it.

Happy Tuesday!

Hi All,

A recent occurence in my life, so I thought I would share.  So what does happen when a house floods prior to settlement…does the world as you know crash down and you void the contract?

I am happy to report…NO! (depending on the amount of damage and repairs)

I recently wrote a contract on a 10-year-old town house that this happened to.  The connecting neighbors had done a beautiful kitchen remodel, complete with moving water lines to accommodate an island sink.  No problem, right…  well, something went askew because when the homeowners arose from a peaceful night’s rest, they found several inches of water in their basement.  What happened they asked???  Well, the neighbor’s beautiful new island sink pipe had burst, releasing so much water that it caused the floor to cave in and flood not only the neighbor’s lowest level, but also their own (the house now under contract) as well.

Guess what the lemonade in this story is?  Well, the buyer got to have the inspector come while the flooring was ripped out and the walls were completely opened!  Wonderful…how many people get to see the inside of their walls when they buy a resale?  Not many!  Mold was present (from the incident we assume), and was noted on the inspection report.  We requested the required repairs and remediation, and the insurance paid for all of it!  Fantastic news…all is right in the world now.

If this ever happens to you…just make sure to get the inspector in as soon as possible, preferably while the walls are open and note anything that is a potential problem…then, ask for it to be fixed per the home inspection addendum and also request the documentation of the repair from the seller prior to settlement.    Make sure to advise the lender of the problem in case the appraisal needs to be pushed back to when the floors and walls are replaced (often a requirement of VA loans and FHA loans).  It also doesn’t hurt to have very kind and cooperative sellers and a fantastic listing agent :).

All in all, the whole ordeal was a total bummer for the sellers and the neighbor’s (whose insurance had to cover everything and their home was in serious disrepair) but no big deal for the buyers…who are still getting an amazing home.

Things go wrong all the time but you just have to make lemonade from lemons.

Happy Monday!

This has been a subject of debate and hopefully I can clear it up…(for Virginia at least)

Having a “ratified” contract means that an offer has been made (IN WRITING) and both the buyer and the seller have signed/accepted the contract…AND….delivery has occurred.  What is “delivery” you ask.  Well delivery occurs when the contract has been received by both parties at the addresses (including email addresses and/or fax numbers) listed in the Jurisdictional Addendum.

So what about emails???

Here is a story…

A buyer puts in an offer to a seller who is on vacation.  The seller is unable to view the document so gets the information verbally from their own agent (agent A) and verbally instructs agent A to counter back with different terms and a higher sales price.  Agent A then calls the buyers agent (agent B) and communicates the counter offer to agent B.  Agent B calls his/her client (the buyer) to see if they accept those terms.  In the meantime another offer comes in from a new buyer.  Agent A then calls agent B to give him/her the courtesy of knowing that it is now competitive and to come back with their highest and best offer…at which point agent B says “my client has accepted your client’s counter offer and has written an email to that effect, I will forward it to you and we consider this contract now “ratified”!   Is the house under contract? Is there anything askew?

Well, a few things.  Calls between realtors never count as offers or acceptance of offers…signatures must be obtained by both parties in the sale.  Additionally, an email to an agent then forwarded to another agent does not count as a contract either.  But you say…Kristen, Virginia Law constitutes an email as a legitimate contract if accepted by both parties….you are right!  Buuuuuutttt…each party must write and say that they have accepted for it to be valid.  Even if they are forwarded by agents, it must be in the clients own hand (keyboard).  The emails should have gone something like this

Buyer: “Dear Mr. Seller, I offer A, B, C, D and F for your house”

Seller: “Dear Mr. Buyer…I thank you for your offer but I would like to counter your offer replacing A, B and C with  x, y and z, but accept all other terms set forth in the contract as stated.  Signed–seller”

Buyer: “Dear Mr. Seller…I hereby accept your counter offer and would like to purchase the home under x, y and z terms in addition to the original terms of D and F,  signed –buyer”

(P.S.  I am no lawyer, so the emails may actually need to be worded more formally and clearly, but for illustrative purposes, this gets the point across)

This, in the state of Virginia, could be considered a valid “ratified” contract….a very loose and risky contract, but a contract none the less.  But what happened in the story above was that the counter offer was communicated between agents verbally and that the buyer wrote an email to her own agent which was then forwarded to the sellers agent.  This does not a ratified contract make.  The sellers never countered in writing, therefore, regardless of the buyer’s email, this was not a valid contract.  Additionally all terms of the contract must be agreed upon, not just the sales price if an original offer was made including additional terms that were not addressed in the counter offer.

So, the moral of the story is, get everything in writing and if email must be the primary form of negotiation, have the sellers and the buyers email their terms from their own email addresses with the presentation, acceptance and/or rejection of terms.  Or, get everyone to sign the contracts like they are supposed to.  Otherwise, no house for you…

Hope this made sense :).

Happy Sunday!

I just want to express my disappointment with many flippers these days. It is great that you got the house for a steal and want to make as much profit as possible, I like money too, so I get it…but if the house has a leaking roof and the HVAC and hot water heater are over 25 years old…can you please pay attention to this too. Maybe skip the granite in the bathroom or the dimmers on every recessed light in the entire house and splurge to have the plumbing pipe collars on the roof replaced so the roof doesn’t cause a water problem in the home when it rains. And if anyone read my post yesterday about “moisture”…water+heat=MOLD…then you have a more expensive problem on your hands. Maybe find the healthy balance between the pretty stuff and the fundamentals of providing a good, solid house for the purchasers. And if you are only going to fix the pretty stuff…Just saying….things like not paying attention to how the new electrical sockets were wired, not installing the sensors on the new garage door, not affixing the range so that is doesn’t tip over or installing the hot/cold fixtures on the wrong sides is not tough stuff and will avoid home inspection and walk through items in the future. Take a little extra time and make sure it is done right the first time…it will avoid a lot of headaches and paying your contractor to come back out to fix the things that were not done right.

Ok…I am off my soap box…

By the way…I really appreciate people who are rehabbing distressed properties…I just would also like see a little more pride put in to the finished product and not just a lipstick job.  This is certainly an overarching statement and does not apply to all flippers by any means…many of them do a beautiful job and have quality work at the same time.