by MICHAEL BODEEN | Nov 30, 2015 | Bodeen Team Blog, Real Estate News
The Contingency Sale Part 3
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In the two previous installments concerning the Contingency Sale, we concentrated on how and why sellers should now be considering offers on their homes contingent on the buyer first selling their own home. We saw that the contingency sale is not new, but was a common method of selling a home before the market gyrations of the mid 2000’s to just a few years ago. Basically, our local real estate market has now returned to “normal.” And in a normal market, contingency sales are a viable and necessary tool we use to buy and sell homes.
Today we look at the buy side of the contingency sale to see how a buyer can best structure their offer to obtain the best possible response from the seller. After all, it’s no given that a seller will want to accept an offer contingent on the sale of the buyer’s home. Why? Because escrow risks increase as more properties (and buyers and sellers) enter the mix. The contingency deal states that if the buyer’s home doesn’t close for whatever reason, the buyer is not obligated to close on this home. Therefore “due diligence” homework is needful to ascertain the facts (hence, risks) that may surface to derail the deal.
To be able to get the best look from the seller, the buyer should have already found a buyer for their home, they’re in escrow with a pre-approved buyer, and they’re past the due diligence (inspections) phase on their home’s escrow. In other words, they’re just waiting to close without any known roadblocks.
But what if that’s not the case? What can a buyer do if they’ve found the house of their dreams, but their house has not sold yet? To be honest, this is not a strong position for the buyer. A buyer’s agent (on behalf of their client) must be able to convince the seller/seller’s agent why they’re better off taking this deal as opposed to another. First, we need to find out how long the seller’s home has already been on the market. If it’s been on the market for a long time (over 60 days) a seller will be more apt to consider it. Also, what is the buyer offering? I would recommend a full price (or more) offer, and all other terms and conditions to be seller beneficial. Whereas a low-ball offer will most likely be an insult to the seller and cease negotiations.
Another tool a buyer (or seller) can use is the “Contingency Release Clause.” The CRC basically allows the seller to continue to market the property and accept other offers subject to a 72 hour “right to release” the buyer’s contingency to close escrow on their home. The downside of this for the buyer is they may have to forego being able to buy this home if there is no other way to close the deal apart from selling their home. The dirty little secret however is that the seller is required to now list the home as “UCB” which stands for Under Contract, Back-Up Offers only. Most agents will not show these home to their buyers.
There is more that buyers and sellers can do accomplish their buy/sell goals using a CRC. If you or someone you know would like more information about real estate, please give us a call. We’re here to help. 602-689-3100.
Mike Bodeen
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by MICHAEL BODEEN | Nov 24, 2015 | Bodeen Team Blog, Real Estate News
The “total” housing supply of homes for sale in the Phoenix Metro region is well down from last year, which on the surface would seem to be not great news for buyers and good news for sellers. All of that decline, however is in the price ranges below $225,000, as illustrated by the chart below, which is for all areas & types:
Above the $225,000 price range, we now have more supply than at this time last year. Sellers should therefore be careful not to over-estimate their bargaining power if they are priced over $225,000. This is particularly true of price ranges over $1 million where demand has become much weaker since August.
This is encouraging news for buyers looking to purchase above $225,000. There is more supply available now than at this time last year in all the other price ranges. If you’re looking under $225,000 you will find that the selection is increasingly meager the lower your price range is below $225,000.
No matter the price range buyers, make sure that you’re pre-approved for a loan if you need one. The nicest homes no matter the price range are most often contested by other buyers.
by MICHAEL BODEEN | Nov 16, 2015 | Bodeen Team Blog, Buying a Home, Real Estate News, Selling a Home
2014 was one of the most balanced years in the Phoenix Metro residential real estate market according to Michael Orr’s (ASU) Cromford Index. One year ago the Cromford Index was just above “100” which Mr. Orr has determined to be a “balanced market” between supply and demand.
From that point the index steadily increased in 2015 favoring a seller’s market. The seller’s market that ensued reached an index of 148 during the first week of September just over two months ago. It has now steadily been decreasing and currently resides at 131. Remember, 100 is balanced, so this reversal only reinforces our market’s trend of maintaining balance.
For context, the Cromford index reached an incredible high of 308 back in April of 2005-which was the seller’s market of all seller’s markets. Just two years after that the index plummeted to its lowest point ever to 27 in October of 2007, a rabid buyer’s market. I can tell you that both of those markets were hell on steroids to work in.
In the near term, it looks as if balance will continue to prevail. Interest rates are remaining low, the number of buyers will remain about where it is now, and the supply of homes for sale is slightly increasing. For there to be meaningful change in any given buyer or seller direction will require an abundance of more buyers to send home prices higher, or a significant increase in the number of homes for sale to drive down values for buyers. From our vantage point we don’t see either of those events happening soon.
The major impacts however will be price based. The lowest price ranges (under $300K) will continue to be very strong for sellers. The highest price ranges, especially over $2,000,000 will not be kind to sellers. The moderate price range ($300K to $800K) should continue in, shall we say, a balanced sort of way.
If you or someone you know would benefit from our expertise, by all means have them contact us. We’ll be happy to help. It’s what we do! (602) 689 – 3100
Mike Bodeen
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by MICHAEL BODEEN | Nov 9, 2015 | Bodeen Team Blog, Real Estate News, Selling a Home
Last week’s blog discussed the increasing use of contingency sales where buyers’ offers are coming in “contingent” on the successful close of escrow of the buyer’s residence. This practice should not be automatically shunned as it has been over the past decade, but neither should it be readily agreed to without doing our homework.
This week I look at how the seller and their agent can diminish the negative risks of the contingency sale. Here are some basic safeguards that sellers can take to prevent getting stuck in a losing situation.
Mike’s best seller practices in order of safeguard:
- Should you take a contingency sale? The answer lies in the “honest” assessment about which home (yours or the buyer’s) has the greater likelihood to sell first. If your home has been languishing on the market with few or no offers and the buyer’s home that they need to close on will be a slam dunk quick sale, then certainly consider their offer. In all instances, you and your professional Realtor should do a thorough investigation as to the facts of the buyer’s current deal.
This includes interviewing the related parties to the transactions including agent, lender, and Title Company to determine the viability of the deal hanging together. Because if their deal falls apart, your deal falls apart and you get nothing (except angst) plus you‘ve lost time.
- Consider taking a contingency on a home if the buyer’s home is already in escrow, and through its “Due Diligence” (inspections) period including the negotiating period which can stretch out to 10-15 days or more. This assumes the buyer’s buyer does not also have a home to close on. You can allow this, but it’s very tricky. Much investigation needs to go into the quality of the other deals. This includes interviewing all other affected Realtors, lenders and title company officers and reviewing sale documents to make sure there’s no hidden hooks that can pierce the deal. I’ve been in escrows that have had up to four other homes that needed to close before my client’s home could close. These are possible, but harrowing and not for the faint of heart.
- Consider taking a contingency if the home just went into escrow and has not yet gone through its Due Diligence period. This can also work, but a few more questions need to be addressed about their property itself to determine if it should pass an inspection from the buyer. Again, this is a duty of you and your professional Realtor.
- Consider taking a contingency if the buyer’s home is NOT in escrow, if in your opinion and that of your Realtor’s, the buyer’s home is more likely to sell before yours. Is their home well priced, not unusually odd, in good condition, good location, etc. It’s still a matter of the odds. Your Realtor is usually best suited to make this determination.
Question: How long should you give the buyer’s to sell their home? It should be within one-two days of their closing. They will need to transfer funds to close on your home. The problem with #4 above is that it’s an unknown until they get their home in escrow. There should be a definite cut-off date.
Question: Can I accept another offer while under contract to sell to another? Usually not, unless you include a clause known as a “Contingency Release Clause.” This clause allows the seller the opportunity to take a new buyer’s offer after first giving the existing buyer the right to eliminate their contingency (72 hour right of refusal) and proceed to close escrow. This needs to be set up when the deal is first structured.
There are a number of other issues that should be addressed as well, but as you can see this is not something that should be either lightly accepted or rejected by a seller. There are a number of benefits in this package, but each deal needs to be weighed on its own merits. And as always, we recommend that buyers and sellers consider having legal counsel review these documents.
If you or someone you know would benefit from our expertise, by all means have them contact us. We’ll be happy to help. It’s what we do!
by MICHAEL BODEEN | Nov 2, 2015 | Bodeen Team Blog, Real Estate News
For those who follow our weekly blog, you’re well educated that our Phoenix/Scottsdale residential real estate market has been and is still sustaining a healthy balance. For example, the most recent S&P Case / Shiller Home Price Index shows Phoenix running a 4.95% annual rate of appreciation – a number that’s positive for both buyers and sellers. Also, as we’ve reported, foreclosures in Phoenix are running at historic “lows,” whereas just a few years ago we along with Florida and Nevada were leading the nation in the highest foreclosure rates.
Our steady and solid market has now brought back into play what’s commonly known as the “Contingency Sale.” The contingency sale simply allows a buyer to buy a home with a “contingency” to close escrow on their existing home first so that their proceeds of sale can then be used to close escrow (down payment and closing costs, or cash) on their new home. This enables the buyer to get the best price they can on their existing home the without risk of losing a deposit.
You might think that that’s the way it should be, however, for the better part of the last decade, that’s not been the case. When we were in the throes of a rabid seller’s market, sellers did not need to give a contingency as there were plenty of buyers with cash or good financing without the need to sell their home who lined up to buy the home. It’s only been recently as our market has steadied that sellers figured out that this could be a smart tool to get their home sold and move into their next one without having to move twice. And it can be a smart tool as long as some precautions are taken to vet the buyer and what he’s selling.
Next week we will look at some contingency sale safeguards that a seller can take
to protect their interest and not get stuck.
by MICHAEL BODEEN | Oct 26, 2015 | Bodeen Team Blog, Real Estate News
And by the way, that may not be a bad thing…
My friends Brice and Sharon (not their real names) asked me a few months ago to come by their home in Scottsdale to chat with them about whether or not (from an economic perspective) it would be wise to add a wing onto their home so that their daughter and son-in-law’s family could live there – permanently. Yes, you did read this correctly, permanently.
On the drive over there, I’m considering if this is wise? Some background: First, the son-in-law, daughter and their two children are already living with them, and for the most part it seems to be working out ok, though in fairness, I haven’t spoken with the younger family, but I’m assuming it’s good with them too otherwise Brice and Sharon wouldn’t be considering spending $150,000 for this to happen. Another interesting note is that Brice’s mom already lives with the family in a detached casita. She has her own cooking facilities and it provides a nice separation, but keeps her close by too. That makes 4 generations under one roof!
In my boomer generation, it was considered a defeat if we had to move back in with the folks. I did that back in the early 70’s but looking back on it now I’m glad I did. Plus,attitudes are shifting, as a record 57 million Americans now live in some sort of multi-generational configuration. Multi-Gen is defined as two or more generations, above the age of 25, living under the same roof. That number has doubled since 1980, according to the Pew Research Center. Reasons why include failure to have employment, divorce, taking longer to get married, financial difficulties including student debt, and let’s not forget the hundreds of thousands who lost their home to short-sale or foreclosure.
Another trend that will doubtless add to this number will be immigrants relocating to the U.S. Many of these cultures already embrace Multi-Gen living so it will be more typical for them.
Getting back to Brice’s situation, Manny (son-in-law) is an underwater welder by trade, but unfortunately his occupation has kept him away from his family for weeks at a time, and sometimes longer. The plan now is to start a business that Brice had going a few years back.
So what was my counsel? I think this was a no-brainer. Go for it! Brice’s property is an acre, the family already has been living together so it’s not like no one knows what that might be like, plus now, with the addition, Manny’s family gets their space too. It becomes affordable for Manny, provides additional grandparent (and great-grandparent) nurturing, and the additional mortgage is acquired at less than 4%. I also reviewed their “draft” drawings which looked good with no red flags. The worst case scenario is what happens in the event they would have to sell? Well, knowing this family, that’s not going to happen for a long time, but if it did, I’m sure there will be plenty of takers for this ready-made multi-gen home.
So, this leads me to this past Saturday where I held an open house on
a listing I have in North Phoenix south of the Carefree Highway on 2
nd Ave. What an awesome home this is. I’ve attached a few photos below in case any of you might know of someone this home could work for. For a home priced at $644,500, we had an especially good number of serious folks visit the home. Three of the couples who came by were specifically looking for Multi-Gen homes. These visitors were boomers with aging parents who knew that sooner, and not too much later, they would be caring for them in some capacity.
Negative Edge Pool with Mountain Views
Main Living Area
This home qualified as a plus for Multi-Gen living because of a large separate room on the south wing that included a full kitchen and bath. There is also two nearby bedrooms and a bath for more folks if needed. You can enter this part of the home separately without interfering with the main part of the home, and it’s a pleasant french door access to the lavish backyard pool and patio area.
Separate Living Area with Full Kitchen and Bathroom
Separate Kitchen
So if you know of anyone who might be interested, there’s one number to call: 602-689-3100.
