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I don't follow. The 10K goes to the seller. The buyer learns that a new furnace is needed. What does that have to do with the 10K that the seller received from the buyer? Negotiated repairs with the seller to save the transaction?
That may be one of several repairs that are needed such that 20 years ago the buyer would have bowed out. And repairs are only one category discoverable during that time. Maybe there’s a shopping center being built across the street. Or a sanitary sewer line to be placed along the back property line. No matter what the potential buyer just bought a new furnace, or the equivalent, for the seller even if he doesn’t go any further.
Back in 2008, I remember hearing so many people, including those in real estate, lending, etc., say that although there is a real estate bubble, it won't affect us in the Triangle area because our homes appreciate 4% to 6% per year, not like Florida (they were appreciating DAILY).
I believed that and agreed with that.
We were all wrong.
So...I no longer believe anyone that predicts the housing market nor the weather!
I was saying it wouldn't affect us as much - price-wise - and it didn't.
I knew things were going wrong when a lender came to an Open House I was working and told me about the awesomeness that was Pick-a-Pay, aka significant negative amortization. When the "government" says they're going to push credit scores down again, then there's a surefire sign too.
I think the 3 C's of credit still hold - capacity (repayment), credit (score) and collateral (LTV). And frankly, you can go without capacity or collateral and make it work - credit, no.
When CA started slowing down, and PaP originated there AFAIK, that's when the poop started hitting the fan. The CA buyers fairly quickly (4 months?) quit coming in and paying all-cash and over asking price, maybe up to 1% over ask. Until ~2018, a cash offer expected a discount.
Even before 2008 it was an old real estate saying that "everything starts in CA and moves East". So, we might keep our eyes peeled there.
Now I'm curious...which states have the due diligence clause in their contracts?
I vaguely remember being told that one of the reasons our NC contract was being changed was because "all the other states were doing it".
Same reason we are soon losing "area" in MLS.
Funny thing is...whenever I used "everyone is doing it", my daddy used to say..."if everyone was jumping off the roof, would you do it too?"
we are not losing "Area" because we're unique in using it. Remember your "Fair Housing" topic?
Many other markets have a set 7 or 10 day inspection period, and seemingly no repair negotiations expected. And no pre-inspection, though likely better disclosure ("No Representation"; that caveat emptor Mike mentioned).
It's just a shorter DD period, in essence. I wonder if there are more inspectors - home, termite, HVAC guys, engineers, etc - so they can get them done in such a short turnaround. Buyer finds out what's "wrong" and either stay or walk.
Learning the system and getting sucked in by it are not the same thing. You should know that.
Indeed, quite true.
I would hope that one would "learn the system" prior to placing their first offer. Afyer that that, I'm a bit less sympathetic. And if their realtor failed to properly explain the current difficulties in that "system,' shame on the realtor AND shame on whomever selected that realtor.
Compared to the general transactional madness predating our DD Period and DD Fee, we are now in Happy-Sensibleville. Inventory will fix current issues. One day, and I hope not too painfully.
DD Period and DD Fee language replaced the following snippets from Standard Form 2-T dated 2009.
Bold and italics are mine:
c) Buyer's Right to Terminate: If Buyer has complied with Buyer's Loan Obligations in subsection (b) above, then within ******* days after the Effective Date (or any agreed-upon written extension of this deadline) TIME BEING OF THE ESSENCE, Buyer shall have the right to terminate this contract by delivering to Seller written notice of termination if Buyer, in Buyer's sole discretion, is not satisfied that the Loan will be approved and funded, If Buyer has timely delivered such notice, this contract shall be terminated and all Earnest Money shall be refunded to Buyer. If Buyer fails to deliver such notice, then Buyer will be deemed to have waived this condition. Thereafter, if Buyer fails to close based upon inability to obtain the Loan, then all Earnest Money shall be forfeited to Seller. If Buyer provides Seller reasonable third-party documentation confirming Buyer's inability to obtain the Loan, then the Earnest Money shall serve as liquidated damages and as Seller's sole and exclusive remedy for Buyer's failure to close, but without limiting Seller's rights under paragraph 17 for damage to the Property. (WARNING: Buyer is advised to consult with Buyer's lender to assure that the number of days allowed for Buyer to obtain the Loan is sufficient to allow Buyer's lender time to take all reasonable steps necessary to provide reliable loan approval.)
I.e., Buyer could, in their sole discretion walk away right before closing and receive their EMD refund.
This snippet actually came from a contract where that happened to my sellers and cost them many thousands of dollars.
Buyers, "in their sole discretion" used that language to get their EMD refund 3 days before closing, after my clients repaired, vacated, and signed a lease on an apartment.
And, the same day they filed, those buyers went under contract at the same price, 3 doors down the street.
I talked to my BIC. My clients got legal counsel. No recourse. Not nice, but legit use of the contract language.
ALTERNATIVE 1:
(a) Property Condition: As to all permanent improvements except: **************exclusions, if any**************
it is a condition of this contract that (i) the built-in appliances, electrical system, plumbing system, heating and cooling systems, roof coverings (including flashing and gutters), doors and windows, exterior building surfaces, structural components (including foundations, retaining walls, columns, chimneys, floors, walls, ceilings and roofs), porches and decks, fireplaces and flues, crawl space and attic ventilation systems (if any), water and sewer systems (public and private), shall be performing the function for which intended and shall not be in need of immediate repair; (ii) there shall be no unusual drainage conditions or evidence of excessive moisture adversely affecting the structure(s); and (iii) there shall be no friable asbestos or existing environmental contamination, (b) Inspections/Repair Negotiations: Buyer, at Buyer's expense, may inspect or obtain such inspections of the Property as Buyer deems appropriate. Only items covered by subsections (a)(i), (a)(ii), and (a)(iii) above ("Necessary Repairs") are included in repair negotiations under this contract. All inspections, including but not limited to any additional inspections recommended by Buyer's inspector(s), shall be completed and written notice of Necessary Repairs shall be given to Seller on or before ****** a date*********(the "Repair Notice Date'). Seller shall have the option of completing Necessary Repairs or refusing to complete them. Seller shall provide written notice to Buyer of Seller's response within ***a number of days***** days of Buyer's notice, TIME BEING OF THE ESSENCE. Sellers failure to provide said notice as required shall constitute an election by the Seller not to complete Necessary Repairs. If Seller elects not to complete all Necessary Repairs, then Buyer shall have the option of (a) accepting the Property in its present condition, (b) accepting Seller's offer to make repairs to the extent and as described in the Seller's response, or (c) terminating this contract, in which case all earnest monies shall be refunded. The Buyer shall deliver the Buyer's written decision to Seller within five (5) days after receiving the Seller's written response, or Seller's failure to respond, TIME BEING OF THE ESSENCE. Failure of Buyer to provide this written decision by the time stated herein shall constitute acceptance of Seller's agreement to make repairs to the extent and as described in the Seller's response. Buyer shall have the right to verify that any Necessary Repairs have been completed in a good and workmanlike manner.
And, what spurious debates and stupid activities "function for which intended" and "Necessary Repairs" led to.
DD Period is far superior and far simpler.
(e) Cost Of Repair Contingency: In addition to the above, Buyer shall have the right to terminate this contract if a reasonable estimate obtained by Buyer of the total cost of Necessary Repairs equals or exceeds $ *****negotiated dollar amount******. This right may be exercised by Buyer without regard to any decision by Seller to complete, or refuse to complete, Necessary Repairs. Buyer shall notify the Seller in writing of its decision to terminate this contract under this Cost of Repair Contingency no later than seven (7) days following the Repair Notice Date, TIME BEING OF THE ESSENCE, in which case all earnest monies shall be refunded to Buyer.
Neither the cost of wood-destroying insect treatment under subsection (c) above nor the cost of radon remediation under subsection (d)above shall be included in the cost of repairs under this subsection (e).
So, we routinely debated the worthiness and reasonableness of estimates used to cite the Cost Of Repair Contingency to escape a bad deal.
It was totally ridiculous. Don't miss it a bit.
And, the current Standard Form 2-T is optional. Consumers can have their own contract forms drafted, can bring other forms to the fray.
Most builders use proprietary forms. iBuyers and Relo companies either use proprietary forms, or proprietary contract addenda to form contracts they find acceptable.
Regardless, I hope never to return to the mess prior to DD Periods.
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Strolling down Memory Lane
