A good packet will contain a current pest control inspection from a locally known and reputable company. Next will be a general home inspection report, written in narrative form, also from a locally known and reputable inspector. If the general inspection revealed specific and serious defects, i.e. a suspect foundation or an exceedingly old furnace, these findings would be followed through with specialty inspections, i.e. engineering or heating contractor. Next up would be a video inspection report of the sewer lateral. Lastly, you would find disclosure forms completed by the seller with their specific declaration of defects, malfunctions, hazardous materials, work done with/without permits, natural hazards, earthquake retrofitting and lead based paint.

A “not-so-good” packet can come in two forms. The first would be a very “skinny” packet, perhaps with just a pest report from an unknown, out of area inspector. Or the seller just replies “don’t know” to just about every question.

The second is the exceedingly “fat” packet. A fat packet might have all the good stuff included but it is buried amongst a ream of only marginally relevant, and often, very old information. The seller’s agent might even include all the disclosures from the previous sale, even after a house has been completely renovated. Some of these fat packets have been 150 pages, or more!

Whenever you see a fat packet, you can be sure that at some point in the past, the listing agency (not necessarily the agent him/herself) has been sued for failing to disclose something. The fat packet is strictly a lawyerly response to the question “what is important to disclose?” Answer: “Don’t try to figure this out. Give them everything!”

Now, I’m certainly not advocating that a seller shouldn’t disclose something from a previous sale, or distant history. But the listing agent should take the time to cull the packet for the most relevant and timely info and place this first. The rest of the stuff can be given to the buyers after their offer is accepted, assuming the buyer has an inspection contingency.

Needless to say, unnecessarily fat packets are a pet peeve of mine. On my listings, I spend a lot of time thinking through what does, and doesn’t belong, in the packet. I make sure the info is presented in a logical sequence, and that most, if not all questions about the condition of the property are easily answered. This way, the buyer can feel comfortable making their offer “as-is” subject to their own inspections. If I’ve done my job right, then the buyer’s inspectors won’t come up with anything that I didn’t already cover in my packet.

Brett Weinstein

The buyer then makes an offer “as-is” in regards to all the disclosed information, but still subject to their ability to inspect the property themselves during an inspection contingency.  At the end of the inspection period, the buyer can do one of 3 things:

1. They are satisfied with the results of their inspections and still want to buy the house per the original terms. The inspection contingency is removed.
2. They are not satisfied with their inspections and wish to back out of the transaction.  This can be done without penalty.
3. They still want to buy the house, but….

The “but” is that they want the seller to agree to a price concession based on information learned during their inspections. Here’s where the notion of “good faith” comes in.

If the buyer asks the seller for a concession based on information that was contained in disclosure packet, I would consider this done in “bad faith.” This takes a lot of nerve, and certainly will not please the seller.  Will the seller agree? Only if there is nothing better on the horizon, or he is desperate.

However, if the buyer is asking for a concession based on newly discovered info, something not covered in the disclosures, I consider this fair game, and done in “good faith.”

The moral of the story is that the more thorough the disclosure packet, the less chance for a buyer to discover something new in the course of their inspections. I’ll cover what constitutes a thorough disclosure in another post.

Brett Weinstein

You’ve probably heard about buyer remorse, where at some point in the purchase of a home the buyer regrets their decision to either buy, or not buy. Optionee remorse is similar, but drawn out over a much longer time frame.

An optionee, in this discussion, is a person who has negotiated a purchase price today for a purchase they will make sometime in the future, say, a year from now. In an appreciating market, setting a price today can potentially mean you will be buying below the then-market value, assuming the market continues to go up. In a declining market, negotiating a price today, trying to take into account what might happen in the future is an obviously risky thing. How risky depends on the terms of the option.

Last year in August, I negotiated a $2.3m home purchase to take place one year later, now in mid Aug 2007. During this yearlong period, my client would rent the house, with 100% of the rent ($9k/mo x 12 months) applied towards the eventual purchase. There was also an up-front payment to the seller of $48k, also to be applied to the purchase.

Now, by definition, an option to purchase is just that, an option. The buyer can choose not to go through with the deal (i.e. not exercise the option). But in this case, not exercising the option meant the buyer would walk away from a total of $161,000 in credits towards the purchase (all the rent, plus a $5k security deposit, plus the $48k option money).

Of course, walking away from $161,000 in purchase credit is no small thing. But it might make sense if the market has gone down during the period of the option. $161,000 divided by the $2,300,000 purchase price is 7%. Has the market for luxury homes in this neighborhood gone down at least 7% in the last year? This was a hard question to answer, namely due to the paucity of similar inventory. Intuitively, it seemed like it had, so the price negotiated a year ago seemed too high for today’s market. The buyers felt like they would be significantly overpaying for the house, and rightly worried whether they could get their money out if they had to sell within a few years.

Oh, another wrinkle: the jumbo mortgage market was melting down. Luckily, the buyers had locked in a great loan rate for the option house, but if they purchased any other property, the interest rate would have been several percentage points higher.

Given all these market changes that had occurred over the last 12 months, the buyers felt like they had a good argument to make asking the seller to lower his price, to $2,100,000. Unfortunately, the seller wasn’t as pessimistic about the market as the buyers were. We were told to exercise the option on its original terms, or walk away.

You start to see the buyer’s conundrum, and the cause for remorse. Should they exercise their option to purchase (they do love the house, by the way), or go back into the marketplace and hope to make up the $161k loss by finding a comparable house at today’s lower prices? This amounted to the perfect storm of anxiety for the buyers.

What happened? Over a period of several weeks, the buyers looked at every other house on the market, none of which sufficiently appealed to them. So they decided to stay put, exercise the option, and hopefully not have to sell the house anytime soon.

Brett Weinstein

Another reason some buyers go directly to the listing agent is they figure they can represent themselves and receive the entire buyer-side commission (typically between 2-3%). The listing agent will quickly shatter that dream. The only buyer legally qualified to receive part of the commission is a buyer with a real estate license. Even an attorney would not qualify.

This leads us back to the buyer looking for an agent to represent them. Since there are agents offering commission rebates to buyers, should you simply hire the one that gives the largest rebate? The obvious answer is no. Finding the right house for a buyer is by far the least important part of a good buyer’s agent job description. A good agent needs to intimately know the neighborhood market conditions and this is knowledge that does not come from a distance. To labor the point: real estate is LOCAL, and a buyer whose agent relies largely on MLS statistics is a buyer who is not getting very good advice.

Aside from knowing about a market up-close, a good buyer’s agent is someone who can advise about the actual condition of the house, both of its defects and its attributes. A good agent knows what current remodeling construction costs are, about the difference between a repair and an improvement, and what the neighborhood “upside” may be.

A good agent also knows what the local customs are regarding disclosures. For instance, in the Berkeley/Oakland market, the listing agent will almost always provide a disclosure packet for the buyer to read before submitting an offer. I can’t tell you how many times I receive offers where the buyer’s agent hasn’t even bothered to ask for the disclosures. Lots of times, the agent hasn’t even visited the house. How credible will this buyer’s offer be? Not very.

While were on the subject of disclosures, a good buyer’s agent knows not only to request them in advance of an offer, but how to read them. Nowadays, it is not uncommon for these packets to be over 100 pages long. Some of the material provided is pro-forma and boilerplate, while other material can be extremely consequential and specific to the house. These important pages are often buried within the not-so-important. A good buyer’s agent will know what to look for and how to interpret it.

How about negotiating skill? This isn’t something one learns in a book, but rather comes from many years of experience. Again, lots of agents offering buyer rebates are relatively new in the business. This skill is not easily obtained and can takes years, and literally dozens of transactions, to fully grasp.

The moral of the story is that if a buyer has found a house to make an offer on and is shopping for an agent, yes, look for someone who will offer a commission rebate. But among the agents doing so, pick the one that has the most experience, neighborhood market knowledge, and the time to visit the house with you prior to writing your offer.

In the Albany/Berkeley/Oakland/Piedmont market, Realty Advocates, with over 20 years of experience, would be a good choice. Recent buyer Kristine Starr had this to say of her experience with Realty Advocates: “Right from the beginning, I was impressed with Brett’s market acumen. We were in a competitive offer situation, and Brett’s experience and calm counsel directly resulted in us not only getting the house but at a price below what we were willing to pay. He also rebated a good part of his commission, all of which made us realize how lucky we were to have him as our agent.”

In the last few years, coincident with the growth of the Internet as a real estate search tool, a number of real estate firms have begun to offer rebates their buyer clients. The firms offering rebates range from venture capital-backed national startups like zip realty, to small local firms like ours, Realty Advocates.

In the pre-Internet days, the information about homes for sale was very tightly controlled by local boards of Realtors with their wholly owned Multiple Listing Service. With the exception of newspaper advertising, buyers needed to work closely with an agent to learn about the inventory and closed sales. Agents are where buyers would also find out about local schools, crime statistics, neighborhood demographics, and where the best coffee shops were. Agents used this monopoly of information to justify their value in the real estate transaction. That value was reflected in the the buyer’s agents share of the total sales commission, usually between 2.5-3% of the sales price.

The Internet has changed all this. Nowadays, all the formerly proprietary or hard-to-find data is freely and easily available on the net. Homebuyers can search virtually all the available listings of all the real estate companies on a nationwide basis. This means that agents spend much, much less time with buyers prior to making a purchase offer and ultimately closing a sale. But has this reduction in the workload translated into any transactional savings for either buyer or seller? For the most part, no.

Traditional buyers agents now earn the same commissions while doing about half the work! Luckily, for buyers at least, companies like Realty Advocates accept the new realities of the Internet and offer buyers commission rebates of up to 1.5% of the sales price, depending on the price of the home and what commission is offered by the seller’s agent. For our Piedmont buyers, for instance, where the median price home is $1,500,000, they would receive a check from us at closing of somewhere between $15,000 to $22,500. Now other local real estate company, with the same level of experience and expertise, offers such generous rebates as Realty Advocates.