New California State Law Requires Buyer Broker Agreement as of January 1, 2025.

 

Craftsman home in Long Beach

As predicted, Governor Newsom has signed into law AB 7229, the new requirement for buyers and their brokers to sign an agreement with each other before making an offer on  a property.  This law applies to both residential and commercial real estate.  There are some differences from the National Association of REALTORS settlement requirements already in practice, including the fact that the NAR settlement concerns residential property only, whereas the new state law (in effect starting January 1, 2025) covers all properties both residential and commercial, and all licensed agents whether or not they are REALTOR members of the National Association of REALTORS.

"Unlike the N.A.R. settlement, which focuses solely on homes listed on an MLS, AB 2992 requires a written buyer representation agreement for any property, residential or commercial, whether it is listed on an MLS or not. This means that all licensed real estate agents, regardless of the type of property they are showing, must have a signed agreement in place before representing a buyer. This is a significant improvement in transparency for consumers, ensuring that they are fully aware of the services their agent will provide and the compensation structure before engaging in any transaction."  from the Santa Barbara Independent, Oct. 3, 2024 .

Contracts may be renewed, and are limited to 3 months for each contract period. While some people may not understand the significance of having such a contract, as a buyer it is important to understand what is to be expected of the agent and the standard of care to be received by the buyer. Buying a property is a large financial and legal commitment, and both agent and buyer need to be actively engaged with each other. According to the NAR settlement, such contracts must be signed before showing a property which will affect REALTORS, and per state law, commercial agents must have a buyer agreement signed before submitting an offer.

It's worth noting that if the state law requirement for a buyer broker agreement is not met, the Department of Real Estate may remove an agent's license.

If you would like more information on working with a Realtor, please contact me for further explanation and consultation before entering into a contract.

See prior post for buyer broker contracts

Julia Huntsman, REALTOR, Broker | http://www.abodes.realestate | 562-896-2609 | California Lic. #01188996

Appraisals Are a Large Reason for Delayed and Terminated Buyer/Seller Contracts

The National Association of Realtors June 21, 2021, Realtors Confidence Index Survey showed:

Problems encountered for a delay of contract closing were due to:

    1. Issues related to obtaining financing - 21%.

    2. Appraisal issues - 26%.

    3. Home inspection/environmental issues - 8%.

    4. Titling or deed issues - 11%

    5. Contingencies stated in the contract - 6%

    6. Issues in the buying/selling of distressed property - 2%

    7. Other - 26% (???) 

Problems in terminated contracts:

    1. Appraisal issues - 13%

    2. Issues related to obtaining financing - 7%

    3. Buyers lost job - 1%

Note that in both groups, appraisals were the largest issue, not unexpected in the huge and fast rise in home prices in the country as a whole.  Low appraisal values are sometimes overcome by the seller being willing to make an adjustment, the buyer having more money to put in, or a loan adjustment made when the buyer is already making a large down payment, or a switch to a different type of loan, or an increase in value when nearby properties justifying the price have just closed escrow.  If there is enough market data, an inperson appraiser visit may be waived and online data is viewed as satisfactory.  This doesn't always work though, and buyers and sellers must not assume that there won't be a problem with trying to close a price that is $100,000 over list. Agents really have to know their local market pricing to avoid an appraisal issue.

 

Julia Huntsman, REALTOR, Broker | www.juliahuntsman.com | 562-896-2609 | California Lic. #01188996

Buyers Feeling Squeezed in This Market, or "What is an Escalation Clause"?

With multiple offers, lowered inventory, and 15 minute showings, buyers have been under considerable competition and pressure so far in 2021.  In order to "weed out" the offers, sellers have been making certain requests, or buyers with several times losing out experiences have voluntarily been relinquishing their standard contingencies.  How?  By upping their offer price (even $100,000 over list price), shortening physical inspection time periods (i.e., 17 day to 10 days, or less), removing appraisal contingencies (putting their deposit at risk if they back out over a low appraisal), as examples.  

Another form of competition is an "escalation clause".   This is where the buyer offers, or the seller counter offers, to automatically increase the price by a certain amount, say $1,000, over any other offer. Of course, without any other language added, the buyer could be forced into paying $1,000 over another bidder offering $50,000 over list price--can the buyer really afford that? Well, what if the buyer puts in a "not to exceed" a certain price?  But now the seller know that buyer's maximum bid, and could use it as leverage to obtain higher amounts from other buyers.

If the buyer offers a "floor price" or $1,000 over the highest offer, the buyer may end up paying a higher price if no other offer matches the buyer's floor price.

To not blindly make offers using one of the above methods, the buyer should include language in their offer or counter offer that "the buyer  receive a copy of the highest offer (upon acceptance) and that the buyer has a right to contact that other buyer or their agent to verify that they made a bona fide offer," or words to that effect.

But California Association of Realtors cautions buyers about making offers with escalation clauses, stating that the enforceability of such offers is not 100% assured, and the buyer is advised to obtain legal advice prior to making such an offer.

For a the complete Guide, please contact me by phone or email.

Julia Huntsman, REALTOR, Broker | www.juliahuntsman.com | 562-896-2609 | California Lic. #01188996

New Transaction Closing Rules with CFPB - Part II

Note:  The new start date is October 1, 2015. 6/28/2015.
Mark August 1, 2015 as the date on which transactions will be impacted!

The Consumer Financial Protection Bureau is an independent agency which operates withoutCongressional supervision, one of the few such entities in the country, and is considered a least accountable agency (by just about everybody including Congress).  It oversees banks and financial institutions, credit unions, students loan, credit card companies, payday lending companies, mortgages, foreclosures.  (It resulted from the Dodd Frank Act which came into place as a result of the economic crash, and its director was appointed by President Obama.)

The CFPB is not federally funded, but instead issues fines to banks for their bad behavior:
Wells Fargo - $24 million; Chase - $11.7 million, NewDay Financial - $2 million; and just the other day, per their website "Green Tree to Pay $48 Million in Borrower Restitution and $15 Million Fine for Servicing Failures".  Yes, there have been failures by the banks, but how we got to a bureau that seems to have no oversight seems to be borrowing a page from the bank failure book.

But for now, consumers, lenders, escrow, title and real estate agents are at the beginning of changes will are most certainly to lengthen the average 30-day transaction to 10-15 days longer.

New terms:
Escrow=settlement agent
Lender=creditor
Day loan docs are signed=consummation day
Close of escrow day=settlement day
LE=loan estimate (no longer a good faith estimate)
CD=Closing Disclosure (replaces HUD-1)

Buyers and sellers, get familiar with all terms but know that "CD" is a 5-page disclosure which must be received by the borrower a minimum of 3 business days before signing of loan documents.  It doesn't matter if you can read and sign in 3 hours, you must wait 3 business days before loan documents can be signed.  What if you ask the seller, and the seller agrees, to compensate the buyer $350.00 towards the buyer's closing costs during escrow?  The borrower receives a new CD and must wait 3 business days.  If the lender decides to mail out the CD to the borrower instead of allowing digital signature time, then the lenders will give a total of 7 business days from send out.

Sellers, I can only say this:  Make reasonable repairs, including all carbon monoxide and smoke detector placements where required,  prior to listing to avoid delays with appraisers calling out such repairs, which will require a second visit by the appraiser, and which also costs the borrower more, in order to avoid these delays.
Buyers, If you decide to make an offer on a property which requires numerous or even just a few, repairs, be prepared for a longer transaction, because everytime a change is made, a new 5-page CD goes out to the borrower from the lender.  You can see how the time starts adding up, going well beyond the existing 17 and 21 days for buyer to investigate and remove contingencies.
Other examples of changes which will require 3 business day re-disclosure:
Changes in APR; changes in the loan product; addition of a pre-payment penalty.
Realtors must be prepared for these changes and be able to work with their clients on these timelines.

A sample calendar provided to me recently shows Day 1 starting on a Monday (Saturdays are included as business days, Sundays are excluded), going all the way through to Day 38 in a NORMAL transaction showing the lender's schedule, but this calendar did not take into account what else could be happening between the buyer and seller during the various contract contingency period, which is how further issues and additional time periods could come up. There is much that will be found out on a practical level when the time comes, because there are still unknowns in these new requirements.
Additional issues:  Lenders may refuse to work with certain escrow companies, and therefore buyer and seller may not be able to choose in some circumstances, because the lender may force both parties to transfer the file to another company.  Please remember, California escrow companies already are "vetted" and responsible to the Department of Business Oversight which maintains their own rigorous standards.

At this point, consumers need to change some of their expectations, both with their loans and the property transaction itself, and who they may be able to select for services.
These are nation-wide changes, not just something happening in one county or one state.  Some industry professionals are saying they've never seen anything like this during their 30 or 40 years in real estate (and they don't mean it in a nice way), so what happens after August 1 will be different--that much we know.

The New Changes in the 2014 California Residential Purchase Contract

As of November 24th, new changes and additions to our real estate contract will be taking place.  This is one of the most significant series of changes, and the largest amount, in many years.  So if you're a buyer or a seller of a condo, house, duplex, three- or four-unit residential property and you open escrow on November 24th or later, you will be using the new form associated with the California Association of REALTORS.  You don't want to be like the little koala and caught unaware of the changes.

Without going into specific detail that would be reviewed completely if you were actively engaged in an offer or a transaction, here is a general summary of some items that would be encountered:

The contract has expanded by two more pages, making a total of 10 pages.

If you're a condo owner, you will automatically be required to pay up front and deposit funds into escrow for the legally required homeowner association documents given to to the buyer.

The parties can no longer spend the entire escrow period submitting their instructions to escrow, but now must submit within 5 days of opening escrow.

The buyer deposit default language now addresses an electronic fund transfer when submitting funds to escrow.  Checks are still acceptable, but the EFTs are now much more common and direct.

Credits given back to the buyer from the seller must now be disclosed to the buyer's lender and cannot exceed the amount allowed by the buyer's lender.

Termite repairs are now considered just that -- a repair to be requested and negotiated between the buyer and seller when other buyer repairs are requested during the buyer investigation period.

The buyer loan contingency default period has been extended from 17 to 21 days.

There are additional forms added to the transaction not previously used, i.e., if the seller stays even just 3 days past the close of escrow, there is now a separate seller leaseback form used to cover that time period.

If you are contemplating buying or selling a property, you should know that the Residential Purchase Contract should be reviewed with consideration.  The ease of digital signatures and emailing of documents has allowed for less face-to-face time with an agent, while the transactional requirements have grown more explicit and careful.  So while convenience is wonderful, not being aware of what you're signing is undesirable. Unless the transaction must be conducted at a great distance between client and agent, personal contact during escrow probably ensures a clearer explanation of documents.

Being a Buyer In An All-Cash Competition

I hear from buyers who put in offer after offer, but don't get the house because of losing out to the all-cash buyer or mostly cash buyer. 

What does such a buyer need to do?  First of all, be prepared to be persistent, and persevere. Next, be totally pre-approved with a good lender.  Know the difference between the average "pre-qualification" letter and a good pre-approval letter from a reputable lender with a local track record and who can close on time, and not surprise you with last-minute underwriting issues that could have been avoided up front.  A good REALTOR can be of tremendous assistance here by pointing you in the right direction, not only with all buyer preparation for an offer, but with the local market. See how quickly you can close, and be willing to negotiate with the seller on some extra days to accommodate their moving date. Be prepared to provide all necessary documentation at the time you submit your offer, sellers want to know they can close the deal with motivated and qualified buyers, not get stuck putting the house back on the market again.

Keep in mind that cash buyers may not offer a seller the most attractive offer, and that a good price from a well-qualified buyer who is getting a loan may stand a very good chance with a motivated seller.  Keep your offer terms clear and simple, and bear in mind that trying to change your contract terms after acceptance by the seller could cause them to cancel and go with one of their backup offers.

Let the seller know you are very interested in their property as your next home (presumably you are), and tell them that when you make an offer.

Last, but not least, review the 10 items to the right to remind you about being a successful buyer! I'm experienced with both 1st time and repeat buyers and can help you position yourself towards success for your next purchase, contact me at 562-896-2609.

What California Homesellers Sometimes Overlook: 10 Things, Part II

Because homesellers may feel eager to sell, they sometimes overlook what could turn out to be very important clues about an offer.
 
About the buyer deposit:

What if the buyer submits an offer for your California home at $250,000, which also happens to be your list price? You think you've got a good offer for your equity sale listing, right?  And you see the letter from their lender saying they're pre-approved and that they have funds to close. So what could be wrong?  It's this:  the amount on the deposit line in the offer is for $500.00. and their down payment shows 20% down and they are paying their own closing costs, so they are presenting themselves as strong buyers. So why aren't they putting down a good $5,000-$7,500 for their deposit so they show you they really want your house? First-time buyers with an FHA buyer assistance program might not be able to do more than $500.00 deposit and be highly motivated, but a investor or other buyer with more assets would be ideally putting down 2%-3% deposit because they have the monetary ability to show their motivation.

Important to remember:  The buyer's deposit is fully refundable to the buyer within the buyer's contingency terms of the standard California of Association of Realtors form contract, but if the buyer defaults later on and walks away, the seller will have little or no buyer deposit as liquidated damages to which he/she may otherwise be entitled.  If you, the seller, question the amount of deposit, remember, you can include a reasonable amount in your counteroffer to the buyer if you believe the buyer has the capability and you want the commitment.

For more help and real estate information, please go to http://www.juliahuntsman.com/Home-worth.html

What California Homesellers Sometimes Overlook: 10 Things, Part I

Regardless of when and where the homeseller could be selling in California, or whether there's a shortage of inventory or not, the transactional issues and facts are still tied to the contract between buyer and seller.

Here's a handy list for the Top Ten Legal Mistakes, with some added commentary by me.

What are the other contractual terms?
Sellers quite naturally want to sell at the highest possible market price, and have very good reasons for doing so. But selling price is not the only term in the contract-- for example, what if the buyer has a contingency to sell their own property, or what does it mean if the buyer is willing to remove their appraisal contingency but not their funding contingency? What if you agree to the liquidated damages clause? In a short sale, do you understand all the terms of the short sale addendum? And what do you need to consider with an all-cash buyer vs. a financed buyer?

What may happen with multiple offer situations?
In multiple offer situations, many buyers could be submitting offers but the seller is not obligated to any one buyer. The seller may respond to all buyers or choose one (but without discrimination). But what if additional offers are submitted in a regular sale after a signed contract exists with buyer no. 1? And what if you're a short sale seller, and a higher offer comes in after the first offer was submitted to the bank? (Hint: the short sale addendum states property may continue to be marketed after contract with the 1st buyer, and other offers may be presented to the bank.) Or, what if the buyer is submitting multiple offers on multiple properties, should they tell you that, or not, in their offer?  (Hint: Yes, they should disclose.) 

These are issues the seller should take time to review carefully and ask questions, preferably before a contract is signed--it saves on remorse later.

The Terms in Your Offer to Purchase

In a 10-page contract, there are quite a few terms and conditions to cover with a buyer when they're writing one with the agent, or with sellers when they receive one from an interested buyer. If using a Realtor as your agent, then you should be using the standards forms with the California Association of Realtors logo imprinted at the top and which are used statewide in residential transactions (logo at right). This post won't answer all questions, by the way, your own case will be individual to your concerns and interests.

• Expect to take some time meeting with your agent the day you make an offer. It's pretty hard to do in five minutes (as I've had some people actually expect). You need to understand buyer contingencies; you should have already contacted a loan officer and bring a letter or certificate or pre-approval with you to the meeting; and be prepared to write a check for the deposit money, which will be held in trust by your agent until submission to escrow.



• The Loan: While funding the loan could remain a contingency throughout the escrow (it's negotiable with the seller), obtaining your down payment and costs of the loan is not, and the contract says "buyer shall act in good faith to obtain the designated loans"--which means that even if one source in this volatile market may no longer be able to help you, you have to do your very best to find another loan in order to honor your agreement with the sellers. After all, you said you would buy the house from them, they've made their arrangement to move one, they may in contract themselves with another purchase they worked hard to find and negotiate, and they're counting on you to perform. Also, you should have already worked out what monthly payment you're comfortable with, because if your agent does not write in a maximum interest rate for your loan on the contract, you could be legally obligated to pay any interest rate, no matter how high.


• Escrow Time: This is another negotiated item, both the provider and the length of time. The usual time is 30 days, but what if the buyer has to give notice, or sell, or what if the seller needs more time to move out, or has a contingency to buy a new home; or what if the buyer's loan is FHA which typically takes a little longer for cosing ... then 30 days might mean 45-60 days. AND, if you decided to purchase a "short pay" property, your escrow time would more likely be 60-90 days because most banks aren't working that quickly on those approvals ... so then if you're financing that property, your interest rate environment could change in that period of time. Be prepared.


• The Appraisal: The appraiser is sent out by the lender to appriase the property, and often the contract requires the buyer to remove that contingency within 17 days. The seller wants to move one, and the buyer wants to know the selling price and appraisal are in agreement. This is just one of several areas where if there is no agreement, the buyer may cancel (not will, "may"). Appraisal reviews are more common, take up additional time in escrow, and even if they don't delay the close, nerves could be frayed over this issue.


• Buyer Inspection(s): This is a major contract contingency, so on the day the buyer has his/her physical inspection, you should be able to follow the inspector around as much as possible and ask questions, or certainly at the end, and most certainly when you get your report, which also the seller receives. Because the buyer has only so many visits to the property before it closes, it's tempting to use that time for home decorating ideas and measuring for furniture. But later on, if an issue comes up, you the buyer might wish you had paid more attention to that inspector while he/she was there, and whom you paid for the inspection.


• Are tenants currently living on the property? Make sure your contract covers their departure or their continuing occupancy.


• Seller Disclosures: The contract spells out the timeline and the nature of these disclosures, and the buyer right to cancel. Carefully look at the Transfer Disclosure Statement, and if you still have questions, take the time to follow up with your agent. The seller is supposed to disclose known defects, but the sellers don't always know absolutely everything about their property. Buyers must do their "due diligence", which is the buyer is given 17 days and a separate buyer inspection form to let them know all the issues to look into if necessary. There are other numerous documents to sign, including the natural hazard report, California tax report, lead-based paint, water heater, smoke detector, and other required or recommended forms, as much as 17-18.


• Taking Title: You need to instruct the escrow officer , and if necessary, get legal advice about how to do this, whether you're single, divorced, married, have a trust, etc. Are you taking joint tenancy, community property with right of survivorship, sole proprietor? How title is taken can affect future legal rights.

These are just a few of the basics of dealing with an offer, other issues include dealing with homeowner associations, liquidated damages and arbitration/mediation. Buying or selling a home is a significant event for most people, it's important to set aside the right amount of time for it. The more you prepare yourself in advance the less chance you will have buyer or seller remorse about how your transaction was handled. Dian Hymer's "Starting Out" is a good publication for buyers.

Long Beach long beach real estate 'Voice this!