Does the Word 'Binding' Still Exist?

By
Real Estate Broker/Owner with Broadpoint Properties Cal BRE #01324959

Short Sale ContractsDo you remember when you got your first checking account? Maybe you were eighteen and you were told that when you sign a check, you are signing a binding contract.

Same goes for the real estate purchase contract. It’s binding. Not sure what has happened over the last several years, but in the state of California, it appears as if many people are not taking the real estate purchase contract seriously.

For example, a buyer offers to purchase a property and close the transaction within 45 days of acceptance of the offer by the seller. Seller accepts, and 30 days into the transaction, the buyer says that his lender cannot close the transaction on time. The lender needs another 21 days.

Or, a buyer offers to purchase a property as-is for a specified price. Then, after the offer is accepted, the buyer changes his mind and wants to pay less. Or… the buyer was going to pay cash, and now needs to get a loan. 

While everyone understands that circumstances arise that can impact a buyer’s decision to purchase a property, it seems that these situations arise more and more frequently.

When it comes to short sales, this is even tougher to swallow. After spending several weeks convincing the lien holder to move forward and accept a short sale based on the terms and conditions of a contract, imagine the lien holder’s dismay when you contact them to say that the buyer has changed his terms, needs an extra month to close the transaction, or wants some additional repairs on a property that is being sold as-is.

Recently, our office negotiated a short sale and the buyer had trouble closing on time. It took over 90 days for the buyer to get his loan docs into escrow. And, by then, the banks advised us that the short sale had to be processed all over again from the very beginning. You see, short sale approval letters can only receive so many extensions before then bank is done.

So, with respect to representing buyers in real estate transactions and especially in short sales, it is vital to set buyer expectations and to explain the real estate contract in great detail. Make sure that your buyer knows what s/he is signing—a binding contract. Frivolous changes and cancellations can be costly. And, in the case of a short sale, a buyer’s inability to respect the terms of the contract can lead an unsuspecting seller directly into foreclosure. And, that would be a real bummer, don’t you think?

 

(photo credit)

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Re-Blogged 4 times:

Re-Blogged By Re-Blogged At
  1. John Cocomile 01/12/2012 10:47 PM
  2. Petra Norris 01/15/2012 11:32 AM
  3. Mary Macy 01/16/2012 12:00 AM
  4. Michael Collins 01/16/2012 11:30 AM
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California San Diego County Escondido
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Tags:
short sale approvals
short sale purchase contract
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Rainmaker
258,019
Bruce Kunz
Bruce Kunz @ Veltri & Associates, 866-483-5874 x464 - Howell, NJ
REALTORĀ®, Howell NJ Homes for Sale

Hi Melissa. I think this problem comes mostly from a general lack of personal responsibility & self-respect among so many today. Many people seem to think they can make the rules and play their own game whether it's buying/ selling a home, joining an organization, or about anything. Clearly, we need them, right?
Not that long ago, a handshake was all it took! I don't think trying to educate will help because these same people don't listen anyway. They get away with being irresponsible because the rest of us have hope things will work out in the end. After all, we need them to, right?
Very frustrating at times. Thanks for sharing!
Bruce

 

Jan 13, 2012 02:07 PM #38
Ambassador
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ASHEVILLE 1031 PROPERTIES RESOURCES & REFERRALS
Asheville 1031 REFERRING BROKERAGE - Asheville, NC
Tell Us What Is Most Important to YOU

FABULOUS post...and I loved reading the comments, too! Your approach to frustration makes me smile...not always easy in a short sale situation.

Jan 13, 2012 03:32 PM #39
Rainer
177,469
Rosalie Evans
Meritus Group Real Estate - Sioux Falls, SD
The Evans Group, Sioux Falls, SD Homes For Sale

I think the increase in laxity of binding is directly tied to the new underwriting rules. I am afraid we are at the banks mercy with this one! Have a great weekend though! 

Jan 13, 2012 06:03 PM #40
Rainmaker
659,023
Evelyn Kennedy
Gallagher & Lindsey, Alameda, California - Alameda, CA
Alameda, Real Estate, Alameda, CA

Melissa:

Buyers do seem to be less serious when they make an offer.  They feel that they can withdraw from the contract any time they choose without a valid reason.  No Way!

Jan 13, 2012 06:40 PM #41
Rainer
127,257
Frank Iglesias
Working With Houses, LLC - Atlanta Real Estate Investments - Lawrenceville, GA
Atlanta, GA Real Estate Investor

Someone hit it on the head.  Commitment isn't what it used to be.  Short sales can be the biggest hassle yes when this comes up.  :-(

Jan 13, 2012 08:44 PM #42
Ambassador
1,579,203
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 800-610-7253 DRE01267479 - Costa M

Melissa - This is such a problem especially with short sales.  Too miuch time for buyers to find something else that might not take as long.

Jan 13, 2012 11:27 PM #43
Rainmaker
556,846
Gary Frimann
Eagle Ridge Realty / Signature Homes & Estates - Gilroy, CA
California Broker and REALTOR

Melissa, it is the wild west out there.  On short sales, having the lender approve the short sale is a contingency of the contract, which must be satisfied for the transaction to come to a close.  That is why I try very hard not to do short sales when I represent buyers.  I will not take short sale listings.  Too many unknowns.

Jan 14, 2012 09:52 AM #44
Rainer
107,458
Leslie G. Rojohn
MoonDancer Realty - Sylva, NC
GRI, ABR ~ MoonDancer Realty

Part of why no one feels bound is that everyone knows there are likely no consequences.  The courts are a mess and it's easier to just walk away.

Jan 14, 2012 10:05 AM #45
Rainer
25,999
Randy & Nancy Selby
The Woodlands,TX Connect Realty.com - The Woodlands, TX

The fact of the matter is that we live in a return minded society today. We should always explain to our clients that this is a binding contract as to the terms of the agreement. It's not like returning a dress or shirt to Target after a period of time. Randy

Jan 14, 2012 10:11 AM #46
Rainmaker
110,371
Carolyn Shipp
Source 1 Real Estate - Mineral Wells, TX
Mineral Wells Texas Real Estate

I just wrote a post about this the other day.  We had two deals lost within the last 30 days because buyers decided that they didn't want the property.  One buyer walked away the day before closing and didn't care that he lost over $2000 in fees and EMD.  The second buyer walked away at the closing table and when told he could be sued for specific performance his reply was:  "So let them sue me."  He was an attorney...I guess he knew no one would probably sue due to the expense of the suit.  Since there are no consequences for the actions of people anymore, they don't care and NO, binding does not mean binding anymore.

Jan 14, 2012 10:17 AM #47
Rainmaker
207,974
Woody Edwards
First Choice Realty, Inc - Chesterfield, VA
A RealtorĀ® Who Answers His Phone!

After almost 18 years in the business, and working with agents from LARGE BOX offices to the 2 person "Boutique" office, I am seeing more agents go toward the smaller office with less fees,,,,,,AND LESS TRAINING!  I am really getting tired calling an agent that just submitted an offer to me, that is full of mistakes, full of blanks, and misssing forms or wrong forms (addendums vs amendments).

Recently, an offer that was 3 days past the closing date, with no certain closing date foreseeable, prompted a call from me to the buyers agent who had that morning left me a voice mail message requesting a 21 day extension in writing from the bank (short sale).  I told her she needed to do an extension to the contract and leave negotiations between the seller and the bank.

She called me back and said, "My broker said the contract states (closing date) or as soon thereafter as paperwork can be performed......I replied "as soon thereafter" refers to a couple of days, not 3 weeks!  Then she tried to use an addendum to change the closing date!!!!

TRAINING, TRAINING, TRAINING!!!!!!!!!!

Jan 14, 2012 11:01 AM #48
Rainmaker
545,503
Cynthia Larsen
Safe Haven Realty - Cotati, CA
Independent Broker Serving Sonoma County, CA

With some agents writing multiple offers for their buyers, how can a buyer take a purchase contract seriously? When an agent says, oh we can just cancel if we find something better, how can a contract be "binding"? You are right, it is a serious problem, esp. with short sales.

Jan 14, 2012 11:22 AM #49
Rainer
122,244
Roger Newton
Roger Newton Real Estate - North Plains, OR

I am a listing agent, and this is a huge problem for me.  It seems like lenders have no concept of this.  They think that it is ok to close whenever they get to it,a nd they usually get away with it.  I had one buyer lose the house because they Asset Manager would not give them an extension.  Asset Managers are tired of this.

I love it when a lender can not close on time, and they require the seller to sign an extension right away to be able to keep the deal...

I recently had a buyer change their mind about 2 weeks after the inspection contingency expired.  The buyer's agent was sure that it was ok, because the inspection was bad....They felt that they were entitled to the earnest money.

Binding means nothing to some people.  Their word means nothing.

Jan 14, 2012 01:25 PM #50
Rainmaker
796,190
Winston Heverly
Winston Realty, Inc. - Atlantis, FL
GRI, ABR, SFR, CDPE, CIAS, PA

Melissa, I think there is this lackadaisical attitude because of this forgiveness of debt and no need to be responsible for anything you do nowadays. This sentiment is seen from the leadership of Government on down to the local level. Everyone expects a bailout, so why should they be worried about commitment.

Jan 14, 2012 02:31 PM #51
Rainer
187,653
Jana Holmstrup
Jana Holmstrup - VP Ops - Kings Mortgage Services, Inc. - Visalia, CA

Oh, Melissa, people these days don't even take their Notes & Deeds seriously and we expect them to care about a purchase contract?  It's a sign of the times I suppose... and I don't like it one bit!  It's not how we were raised.

Jana

Jan 14, 2012 03:20 PM #52
Rainmaker
164,198
Marlene Dietrich
Marlene Dietrich Real Estate - Newport Beach, CA
Neighborhood Real Estate Specialist

We always have both sides sign a release of continguency after the 17 days are up. In fact we give a 48 notice 48 hours prior to the en of the 17 days.

With Short sales you can Open an escrow to tie the buyer in to the home otherwise they feel no desire to stick with it

www.MarleneDietrichNewportCoastRealtor.com

Marlene Dietrich, Tony & Mike

Jan 14, 2012 06:36 PM #53
Rainmaker
1,275,512
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

The flip side of this problem is getting a straight answer from a lender.  A promise means nothing from them.

Jan 14, 2012 08:36 PM #54
Rainer
40,894
Diana Roca
Century 21 Camelot Realty Inc. - Cape Canaveral, FL

It is the sign of the times. Homeowners walking away from properties because they are upside down. I have met many people who tell me "I do not want to pay my mortgage, it's underwater". They feel entitled to walk away. No consequences.

Jan 15, 2012 11:28 AM #55
Rainmaker
235,333
Jenny Durling
L.A. Property Solutions - Los Angeles, CA
For Los Angeles real estate help 213-215-4758

The current lending environment has made it practically impossible for anyone to stay withing their loan contingency period.  I'm almost used to that. What I DON"T understand is how you can present an offer with a 3 -day response time and have the seller not get back to you for a week or more!  If they are going to do that, at the very least they should extend my client's offer to the date of their counter IN the counter. It's like the wild west out there right now!

Jan 15, 2012 11:24 PM #56
Rainer
83,887
Brad Baylor
ERA Coup Agency - Milton, PA

Something I have experienced is a buyer getting cold feet and then talking their lender into issuing a rejection letter so the buyer can get their escrow deposit back.

Jan 16, 2012 09:25 AM #57
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Melissa Zavala

Broker, Escondido Real Estate, San Diego County
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