So, as we slide out of the crazy sellers’ market of the past several years, we have time to catch our breaths and contemplate. What are the new issues? What did we learn?
The answer to question one: none. The answer to question two: Hopefully a lot! Let’s examine.
In the crazy market it seemed that prices shot up daily. An accepted offer was bettered days later by a substantially higher offer that the seller wanted to take. This resulted in folks seeking to terminate accepted offers. In one situation I know of, a seller terminated an executed agreement on the advice of her listing agent because the buyer was two days late with a $3,000 deposit. Seller then entered an agreement with buyer 2 at the higher price. Seller was rewarded by a lawsuit filed by buyer 1 that took a year to resolve!
While this behavior may not occur in a “normal” market, there is nothing new about the issue of termination. There are provisions in the agreement of sale that say if something occurs the seller has the right to terminate; other provisions give the buyer the right to terminate. Many provisions that call for the performance of an act are not so instructive and say nothing about the right to terminate (e.g. as when a deposit is paid two days late). The appropriate tact remains the same today as it did 10 years ago: if your client wants to terminate suggest that she get the advice of counsel.
Other problems I’ve witnessed recently arise from the very formation of the sales contract. For example, seller counters the buyers offer and while that counteroffer is being considered the seller receives a second and higher offer. Can seller rescind the counteroffer not yet accepted? And what happens when the buyer-agent says “too late, the buyer signed the counteroffer yesterday.” This problem too is hardly new though I’ve witnessed it more frequently in the sellers’ market.
There were also some positives! It took a little time but sellers awoke to the power they enjoyed over the last few years. Suddenly deposits became meaningful. The check-box making a buyer’s deposit a liquidated damage in the event of default, was no longer seen as obligatory.
And then came the “sight-unseen” purchases. I’ve never witnessed that before, but again, the issues aren’t really new. Remember lecturing your kids about the danger of impetuous purchases?
The crazy market has, and will continue to have buyers skeptical of the honesty of the seller disclosure. Without inspections to catch what a seller may not have known, buyers are more likely to assume that sellers lied and that their agent let them down with the result that more suits are being filed against sellers and the agents. The refrain has become my agent made me waive my mortgage contingency; my agent made me waive my home inspection and all other contingencies; my agent told me I didn’t have time to come in from out of town to look at the property; my agent told me I had to double my intended deposit ….”
But folks, there is nothing new about agent competency. We all know agents didn’t create the situation. But because the stakes are so much higher, agents exposure to criticism is that much greater. Some of you recently invoked a practice that is age old for others; explaining the risks and making clear that the loss that may arise from any risk will be borne by the buyer. You may need to waive your home inspection in order to have your offer accepted, Mr. Buyer, but If you do, there is the risk that you will discover serious latent conditions after your purchase.
Another risk, accentuated by this market, is the limited time between contract and closing. This period was shrinking before our crazy market but its consequences became more significant. Items that might be repaired before settlement were deferred to post settlement with buyer being credited a sum in order to accommodate the fix. What happens when the subsequent fix costs three times what the parties anticipated? Again, nothing new here.
Indeed, shifting markets impact the balance of power between buyers and sellers. Risks increase or decrease and agents scramble to adjust to the market conditions. But matters involving offer/acceptance/delivery, liquidated damages, time of the essence, fault and remedies have not changed.
I imagine many of you could argue that marketing has changed. How one advertises, how we deal with multiple offers, and other issues vary based on the market. While I focus on legal issues and risk reduction, I venture to say that marketing issues are also as old as the sun and moon. Share your thoughts.