Important News and Techniques for Today's Real Estate Market

I recently had the opportunity to give a presentation about issues specific to different types of distressed property sales, and thought I'd share some of the tips and information that came out of that effort.

Protect Your Buyer with An Inspection Period When Possible

• Agents, make sure that you give your clients an opportunity to inspect the property when you can.  This should be an available option--even when the property is being sold "As Is"-- in most states, except where an auction process is being observed.  It is imperative that you craft any offer you make on your client's behalf in such a way that they have ADEQUATE TIME to get their inspections done. 

• Remember that there will most likely be issues having the utilities activated for your buyer's inspection.  In contracts where I can (like short sale contracts) I like to write in a stipulation that the Buyer's inspection period will not begin until after the utilities have been activated, but the option is not always available.  KNOW whether utilities are on before you make the offer so that you can give your client a reasonable expectation of the risks he/she will have.   Oh, and the HUD process is especially grueling.  KNOW IT and advise your client about what to expect.

• Know the difference between DUE DILIGENCE and INSPECTION PERIOD.  It's important.  Most foreclosure contracts are geared to INSPECTION periods, not DUE DILIGENCE periods.

• In cases of short sales, the inspection period (or due diligence period) should tie to the WRITTEN acceptance date FROM THE LIEN HOLDER so that you don't risk your Buyer having money tied up in the property if the Lien holder does not approve the sale.  This is sometimes standard in most states' contracts (not in Georgia's!), but remember, you'll be working with lots of Seller exhibits and addenda that have control over the basic state form. 

What Happens When The Seller Changes Their Mind

Let me take this time to say that "Yes, Sellers of distressed properties do 'flake out'."  Frequently.  And without any apparent reason or logic.  Lately, I've heard lots of horror stories where Buyers relied on the Seller's verbal acceptances only to have the property sold to someone else a week before they were supposed to close, or listed for auction while it was supposedly "under contract" (but with missing signatures), or packaged and sold to an investment group, etc.  Sure, you'll need to allow additional time for the Seller to get you the signed documents when you're dealing with a distressed property sale--just don't stop working towards getting the signed documents and make sure your Buyer knows to limit the amount of money they put towards the deal until they have a signed commitment from the Seller! 

When You're Representing Your Buyer at an Auction

Whenever a due diligence or inspection period is not allowed, you must have your Buyer do their homework BEFORE they make the offer!  We all know that the auction process is the scariest for buyers, since it almost always offers the most risk.  Make sure that your Buyer understands the risks involved and encourage them to treat the auction as a trip to Las Vegas...I've even found myself using the words "Please don't gamble with money you can't afford to lose." 

Read the Fine Print

There's a closing attorney in Peachtree City that always says (when talking to Buyers about their loan paperwork),  "If you see anything in there that is in your favor, it's probably a mistake".   Boy, that goes DOUBLE for the Exhibits and Addenda that accompany a distressed property sale! 

Pay careful attention to what your Buyers are signing so that you can explain it to them and advise them on how best to meet their obligations!  As an example, many bank contracts / foreclosure contracts and most Corporate Relocation Exhibits have specific closing date performance objectives that could mean BIG FINES for your Buyer if they don't close on time.  When that's the case, you'll want to make sure 1.)your Buyer knows that and 2.)the Buyer's Lender knows that!

Don't Overschedule

If you just read my comments about performance objective clauses in the contract addenda, you'll know that there are cases where it can cost you a per diem amount when you are late to close.   The time to plan on avoiding those fines, though, is BEFORE YOU MAKE THE OFFER!  Here are the top 4 ways to avoid overscheduling issues:

1. Talk to the Lender to make sure that the requested close dates are attainable (before you make the offer).  Make sure you understand how long it should take for the Lender to get the file to closing. 
2. When making your offer, you should include a stipulation that gives your Buyer an automatic extension to the requested close date if negotiations extend past a particular time. 
3. Don't schedule near a bank holiday or the very last day of the month if you can possibly avoid it. 
4. Give your Buyer some wiggle room. 

You can't make the transaction "bullet proof" for your clients, but you should communicate to them what their risks are.  As always, my advice is to do your best to protect your client in the transaction--you will never be ashamed of it and you will never have to apologize for it when you've given your buyer your best effort!

Good luck and Good Real Estate!