Seal your home purchase offer with a kiss

In most cities, the 2000 spring home buying season has been almost as strong as 1999’s. Many areas are sellers’ markets, which means there are more qualified buyers than there are homes for sale. If you want a seller to accept your home purchase offer, especially if another buyer makes an offer, follow the KISS rule — “Keep It Simple, Stupid.”

The reason the KISS rule is so important, especially with home purchases in today’s competitive market, is best explained by that old motto “A confused mind says no.”

If your purchase offer is full of contingencies and possible escape clauses, the seller is likely not to accept your offer. For example, if you make your purchase offer contingent on the sale of your current home, unless the local market is slow, the seller and the seller’s agent are likely to show you to the front door.

DON’T STEAL IN SLOW MOTION. When you find a reasonably priced home that you like and want to buy in today’s hot market, don’t irritate the seller with a low purchase offer full of contingencies. I don’t know who said, “Don’t steal in slow motion,” but that is especially appropriate.

To illustrate, last September I decided to sell a rental house I had owned about 12 years. Frankly, it needed painting and fix-up since it had been occupied by the same tenant all that time. When I showed it to the first prospects, the whole family showed up — father, adult sons and even one son’s future wife. I explained the price, that it would be an “as is” sale and that I knew of no defects in the house.

They thoroughly inspected the house, noting improvements they would make, especially in the kitchen. I asked if they were preapproved for a mortgage, and they said financing would be no problem. The next day they made me a full-price, all-cash, no-contingency purchase offer. The sale closed on schedule a few weeks later. I was happy; they were happy. We all benefited from the KISS principle.

PRETEND A JUDGE IS LOOKING OVER YOUR SHOULDER. When I began investing in real estate many years ago, a wise Real estate attorney told me to pretend a judge is looking over my shoulder when making a real estate purchase offer. That means the purchase offer should be so easy to understand a judge can easily understand it if a lawsuit about that contract ever becomes necessary. Here are the basis essentials for KISS home purchase offers:

1. THE BUYER’S AND SELLER’S NAMES. The names and signatures of all the buyers should be on the contract. If you might add additional buyers, such as parents to help qualify for a mortgage, just add the magic words “and/or assignee” to make the contract assignable. When the offer is accepted, you or your real estate attorney should make certain all current titleholders sign their acceptances. If even one seller’s signature is missing, you have an unenforceable contract.
2. PROPERTY DESCRIPTION. Including the street address or legal description of the property being sold is usually not a problem. If it is rural property or a vacant lot, make your purchase offer contingent on your approval of a survey to be insured by your owner’s title insurance policy.
3. GOOD FAITH EARNEST MONEY DEPOSIT. Some buyers make a full-price purchase offer, or at least an acceptable offer, but they neglect to include a decent good faith earnest money deposit. Typical deposits range from 1 to 10 percent of the offer price. However, if you’re making a low offer on an overpriced property, a large deposit can often persuade the seller to accept your offer. Some buyers make low deposits, to be increased to 5 percent (or more) of the sales price upon removal of the contingencies. This might be acceptable to a seller in a slow market, but not in a hot seller’s market, which many cities are now enjoying. The larger the deposit, the greater the probability the sale will be successfully completed on schedule. For example, a good friend recently accepted a $500,000 apartment building purchase offer with a $50,000 deposit. Although the buyers are having some difficulty getting their funds out of a foreign country, my friend isn’t worried. If they default, he looks forward to keeping the $50,000 forfeited deposit; however, he thinks the buyers’ funds will become available in a short time to close the sale. Buyers should be certain the deposit will be held by a third party, such as a title or escrow firm, bank, real estate broker or attorney in a trust account. The seller should not be allowed access to the deposit until the sale closes.
4. SPECIFIC SALES PRICE AND TERMS. Buyers whose purchase offers specify “All cash to the seller” should be certain they either have the cash available or have been preapproved for the necessary mortgage. Most sellers, however, are willing to accept a contingency clause such as for the lender’s satisfactory appraisal if the buyer shows a preapproval letter or certificate.
5. KEEP ADDITIONAL CONTINGENCY CLAUSES TO A MINIMUM. Since a home is a major purchase, reasonable contingency clauses are acceptable to most sellers. Bearing in mind the KISS rule, contingency clauses to consider include:
   a. A PROFESSIONAL INSPECTION CLAUSE. The smartest sellers obtain a professional inspection report before listing their homes for sale. If repairs are needed, the seller can either have the repairs made before putting the house up for sale or sell the house “as is” after disclosing the inspection report results. If the seller has not hired a professional inspector, most buyers insist upon a contingency for approval of their own professional inspection report. This is reasonable, but a short time limit, such as five days, should be included. If the report reveals serious problems, the contingency allows either the seller to agree to pay for repairs or the buyer to cancel the purchase.
   b. SELLER’S WRITTEN DISCLOSURE OF KNOWN DEFECTS. Many states now require sellers to disclose in writing any known defects. Even in states where not required by law, buyers should insist on such written disclosures as a condition of the sale.
   c. OTHER CUSTOMARY INSPECTIONS. Depending on local customs, additional contingencies can be included in the purchase offer for inspections such as termite, pest control, radon, building code compliance and energy efficiency.
6. LIQUIDATED DAMAGES CLAUSE. Many preprinted home purchase contracts contain a liquidated damages clause. If the buyer and seller initial it, this clause specifies the maximum amount the buyer will forfeit to the seller for failure to complete the purchase. Then, the seller cannot sue the buyer for additional damages if the buyer cancels the purchase.
7. ARBITRATION OF DISPUTES CLAUSE. A controversial clause in many preprinted purchase contracts provides for arbitration of any disputes that might arise. If you sign, you give up your rights to a jury trial, court rules of evidence, and appeal of the arbitrator’s decision. Many real estate attorneys suggest not signing an arbitration clause because, if a dispute later occurs, the parties can agree later to arbitration.
8. ALL-INCLUSIVE WEASEL CLAUSE. In slow markets without much buyer competition, some purchase offers include escape clauses such as “This purchase offer is contingent on my attorney’s inspection and approval of this contract within 10 business days.” This is also known as a “free look” clause, but many sellers refuse to accept it, especially in highly competitive sellers’ markets.
   
   CONCLUSION. By following the KISS principle when preparing your home purchase contract, chances of its acceptance by the seller are greatly increased while both parties are protected. If you don’t understand the terms of the home purchase agreement you are asked to sign, please consult a local real estate attorney to review it with you.