Rambling About (Portland) Real Estate
By Charles TurnerFor lack of a specific topic today:
Heard somewhere: Foreclosures are up 50% from this time last year nationally. Nevada is worst off.
The Oregon Association of Realtors held a very nice fundraising event that the Oregon Golf Club Thursday night benefiting OAR’s Home Foundation.
8549 NW Ryan is now $679,000. Down $20,000 from the original listing price. The cost of the sale fail is higher than the earnest money the seller got to keep. Since we don’t know why it failed, it is hard to analyze it. It does illustrate the importance of the beginning of a listing period.
Our NW Hoyt project is going well. I’ll post more in the next few days with pictures. John’s Waterproofing installed the WaterGuard system on Thursday. That allows us to finish the basement out without the future risk of water damage. We haven’t had much rain since we took possession so it is largely an insurance policy aswe never saw water in the basement.
Should a seller reject an offer because the earnest money is too low? What if the offer is really attractive? How much does a seller lose when the seller still owns the property and has the earnest money?
At $679,000 the price is getting much closer to 95% of $699,000, and the clock continues to click.
How much does an agent earn for a failed sale? In other words, how much of the earnest money did you earn? I would hate to see the seller earn the earnest money and the agent be left in the cold, if the place does not sell and is relisted with another agent. If I am a seller, then I would want to know the fee arrangement of a failed sale. Is it the same as the regular sale commission? If so, it seems the agent does not get much, as most earnest money deposits are relatively small, and a small percentage of that is much smaller.
What are some reasons that buyers back out so late, essentially at the last minute? I’m guess that the list does not include the buyer considers the price to be very low. In other words, if the buyer thought the price was very low, then he would have completed the sale. At some level it really is about time and money. What I am going to suggest is that the number one reason that a buyer would back out so late in the game is because the negotiated price is too high. I’m sure the sale would have closed if the sales price were $400,000.
Some agents take a “marketing fee” or a portion of forfeited earnest money- we don’t and 100% went to the seller. We don’t get a dime if the transaction doesn’t close.
Yes, buyer’s remorse is on the list of reasons transactions fail.
Almost every term of a real estate transaction is negotiable. I wouldn’t reject an offer just based on the earnest money but counter back. There is no “rule” as to how much earnest money should but in the event of a dispute, anything over $7000 is beyond small claims court.
Out of here for Father’s Day activities.
“I wouldn’t reject an offer just based on the earnest money but counter back.”
Let’s get the facts straight: A counter offer is a rejection. Once you counter, you cannot go back and accept the first offer.
As far as the “beyond small claims court” goes, whose advantage is it to be beyond small claims court? It seems like the seller would want over $7,000 so it would make it more expensive for the buyer to seek a court remedy.
A buyer wants the lowest possible earnest money, to minimize risk. The seller wants to greatest possible earnest money, to minimize the risk of a failed sale. I had a friend who accepted a $500 deposit on a $250,000 sale. When it fell through 60 days later, he felt shorted.
I’m watching for the next price reduction on the Ryan property, which I am convinced will come, even if it is with a new agent.
I am still wondering, “How much does a seller lose when the seller still owns the property and has the earnest money?”
Let’s get the facts straight: A counter offer is a rejection. Once you counter, you cannot go back and accept the first offer.
An accepted offer is a binding contract.
A counter offer is a negotiation.
A rejection is dead.
I am still wondering, “How much does a seller lose when the seller still owns the property and has the earnest money?”
You can’t answer that. What are the carrying costs? Is the next offer the same, lower or higher? Might be able to answer that when the transaction closes but no way before that.
The amount of earnest money is a topic of its own.
That last comment was Charles, not Jenny. It autofilled her info.
Charles-
I don’t know where you went to law school, but maybe you need to review your fundamentals of contract law book.
This skirts around the underlying issue: “A counter offer is a negotiation.”
A counter offer is a rejection of the original offer.
“Except for the simplest deals, it generally takes more than one round of negotiations to form a contract. Often, the offeree responds to the initial offer with a counter-offer. A counter-offer is an offer made by an offeree on the same subject matter as the original offer, but proposing a different bargain than the original offer. A counter-offer, like an outright rejection, terminates the offeree’s legal power of acceptance.”
http://library.findlaw.com/1999/Jan/1/241463.html
The bottom line is that a counter offer is treated just “like an outright rejection” as far as holding the offeror to the deal, and “terminates the offeree’s legal power of acceptance.”
Another way to state this is that a “negotiation” is only binding on the offeror, which would be the seller when the first counter-offer is made.
By the way, an outright rejection is still a negotiation in that a potential buyer may come back at any time with a new offer, which may again be rejected or accepted.
Moving beyond that, other than a small amount of time (it was only about 2 weeks in this case), how does the seller lose when the deal falls through? Yes, there is some ‘carrying costs,’ but since there really was no sale, there is a loss?
What if I offered $1M for the place with a $500 earnest deposit. Is it realistic to suggest that the seller has ‘lost’ a few hundred thousand when the deal does not happen? Or is it more realistic to suggest that the seller realized $500 in revenue?
A counter offer is a rejection of the original offer.
Yes it is. I never said anything contrary to that. I did not go to law school. If you have a question on contract law, consult an attorney.
Until both parties agree to terms either party can walk away.
The better question is why the seller accepted your $500 in earnest money on a $1M transaction.
Moving beyond that, other than a small amount of time (it was only about 2 weeks in this case), how does the seller lose when the deal falls through?
Again, can’t really answer that. The second potential buyer that bought something else when the sale went pending?
From the standard earnest money agreement:
SELECT ONE: ____ Seller does not accept the above offer, but makes the attached counter offer; _____ Seller rejects Buyer’s offer without a counter offer.
A counter is rejection of the first offer, clearly, although it does begin the negotiation process if the buyer is game. I think its important to understand that if a counter offer is rejected without another counter from the buyer, the seller can’t go back and accept the original offer.
Also, I think when Charlie referenced the small claims limit, his point was that most sellers don’t want to get wrapped up in the mediation and arbitration process that the standard purchase agreement force them into.
Personally I would think twice about that, as the only beneficiary is really the real estate industry, which gets to have the benefit of sealed outcomes, rather than court cases which become a matter of public record.
Just as a follow up to my last post, I actually like the mediation clause, I think making parties sit down face to face and confront each other reasonably before any legal wrangling is a good thing.
Also, I think when Charlie referenced the small claims limit, his point was that most sellers don’t want to get wrapped up in the mediation and arbitration process that the standard purchase agreement force them into. Personally I would think twice about that, as the only beneficiary is really the real estate industry, which gets to have the benefit of sealed outcomes, rather than court cases which become a matter of public record.
For the record, it is Charles, not Charlie.
From what I heard, it was the court system that insisted the real estate industry figure a way to keep disputes out of the courts. Mediation and arbitration does that. It makes things difficult because there is no case law for Oregon real estate.
It works both ways. A sealed outcome that exonerates a Realtor doesn’t get published either.
And to paraphrase all of the above comments: only an accepted offer is a binding contract.
My previous post about the lack of real estate case law in Oregon:
http://www.portlandrealestateblog.com/realestate/2007/11/oregon-real-est.html
Charles-
“The better question is why the seller accepted your $500 in earnest money on a $1M transaction.”
Let me remind you: EVERYTHING IN A REAL ESTATE TRANSACTION IS NEGOTIABLE. We need not ask why, do we?
If the offer was made, and accepted as written, then my question stands: Did the seller lose several hundred thousand dollars because of my $1M offer?
I am still wondering, “How much does a seller lose when the seller still owns the property and has the earnest money?”
You can’t answer that. What are the carrying costs? Is the next offer the same, lower or higher? Might be able to answer that when the transaction closes but no way before that.
You keep trying to toss road blocks in the way. I may be an idiot, as I seem to have some hope that you might actually eventually address the underlying issue. Maybe I am just plain dumb. Here we go: $700,000 offer – deal falls through with $500 earnest money.
Let’s take it bit by bit:
A: Later the home sells for $700k
B: Later the home sells for $705k
C: Later the home sells for $695k
As to carrying costs, let’s assume current interest rates are 7%. Outline any additional carry costs as you see fit. Assume a 60 day time frame for the issue of duration, unless you can generalize the impact of time.
Also could you specify the methodology that you believe is the right way to account for the loss, and then perform the computation for each of the above examples.
You seem to have more time on your hands than I care to dedicate to computations on hypotheticals. Feel free to post your results and we will address them.
And, while your at it: the buyer and seller have agreed that the earnest “money” is a pair of breeding goats. As you point out, everything is negotiable. The buyer forfeits the goats and terminates the transaction. Can you give us the best use, both economically and socially to help us determine whether the seller made or lost out by receiving the goats?
My results are simple: There is no loss.
The seller realizes the earnest money in revenue, and sell the property for the fair market value. A failed sale does not change the fair market value. I can only imagine if it did–how many failed sales did this property have? Oh, well, then let me reduce my offer by a few thousand dollars, as the property suddenly is not worth as much.
The property has a given value, and a failed sale does not change the value. No professional appraiser, that I know, ever asks “How many people didn’t buy this property.” As far as I am concerned it’s almost comical that you would suggest that there is any loss. Not that long ago, you might have suggested that a failed sale was a gain for the seller.
In any event, I note you never answered the question of how to compute a loss, and I think we both know the reason why: BECAUSE THERE IS NO LOSS.
If the earnest money is not large enough to cover the risk of a failed sale, then SIMPLY SUGGEST THE SELLER TURN THE OFFER DOWN–FIND A REAL BUYER! Isn’t that was a sales agent is paid to do?
I’d trade the goats and marry the daughter!
Hey haha, time to polish up your name tag and put your drive through mic back on, breaks over. I’d like the double cheese with a medium fry and….
I just love a classist put down! Almost as good as telling him to move out of his Mom’s basement!
How Pithy of you Thrifty! MEEEEEOOOOOWWWWW
I just love a classist put down! Almost as good as telling him to move out of his Mom’s basement!
How Pithy of you Thrifty! MEEEEEOOOOOWWWWW
Naysayer, even you must have been through with that nowhere line of inquiry he was putting out.
Yeah, I was. I liked Charles’ reply “You seem to have more time on your hands than I care to dedicate to computations on hypotheticals.”
Just being playful. Or an a-hole, can’t tell which.
I am happy with my new wife.