Today I wanted to discuss a common trap I see sellers sometimes get stuck in when they have a house to sell. This phenomenon happens quite a bit, rarely with good results for the home seller. While I have no real explanation of why, it happens quite a bit on estate properties. I run into this several times a year and in the past 14 years it has only worked out twice favorably for the home seller. In all the other cases, it has cost the seller lost time and probably even in some cases, lost money. There was even a case involving a lawsuit, because a seller accepted two offers (not understanding contract law). So what is this common trap?
Word Gets Out, You Have a House to Sell
Word gets out amongst neighbors, friends and families that you have a house to sell. It could be a home that is part of an estate or it could be you own home. So all these buyers come out of the wood work before your home is even listed for sale with a real estate agent. You will either know the person, or they are connected to a person you know. It will be a friend, a family member, a neighbor or a connection to one of these people.
Now you think, that’s great! I have a house to sell, I have a buyer, I can save on the real estate commission! Why wouldn’t you? It makes you feel confident that you have buyers before you even list your home. Typically these buyers are not serious buyers. They are hopefuls who are not really qualified to buy or hoping to take advantage of a situation. Does it work out? Sometimes but very rarely.
What is your buyer thinking? Great, I can score this house for an unbelievable price or I can drag this out until I can get everything together. There goal is to cut out the voice of experience and reason, the real estate agent.
Time and time again, I will talk with a seller who wants to list their home, but they have this buyer or even buyers who want to buy the house. Kaching! Kaching! the idea of saving money on the commission is one tantalizing little treat. A week goes by, two weeks goes by, yet there is no firm contract on the house. It is still in discussion. Then a month goes by, still nothing. Meanwhile, you the the home seller, who has this house to sell have kept this home off the market. The buyer keep assuring you he will buy the house.
So what is actually going on? There are three scenarios that I see here and it can be one or a combination of the scenarios. The most common scenario I see is that it is a pipe dream, the folks that are interested probably cant afford the house and they are scrambling around to gather up the down payment or the financing. The second scenario is the home buyer is only going to buy the house if he can steal it. They chip away trying to get the price down, pointing out problems etc…. Lastly, the third scenario is while we have a seller with a house to sell and a buyer who wants to buy and the terms seem acceptable, neither party is experienced enough to move it along. It stays in the talking stage and then just fizzles.
Meanwhile, you have missed valuable market time, especially if you have held off listing in the prime fall or spring selling season. In all ca cases, because there is not a REALTOR involved, they string you along.
This just recently happened to a seller of mine and this is what prompted me to right this post. They had a family property for sale and no less than 10 people cam forward saying they wanted to buy the house. A week goes by, two weeks go by than a month, no contract!! They waited a month and a half and kept the house off the market during the peak fall selling season. I warned them about this scenario because I see it all the time. Yet they opted to wait.
This is How it Works in Our World
This is how it work when you go through a real estate professional. Buyer views a house. Buyer likes the house. Usually with in a day or two they write an offer. Contract is signed by both parties. There is a legal and binding contract on the table with deposit money with in hours to a day or two of making the decision to buy! When a home is listed by a real estate agent, buyers are scared to lose a good home. They are fully aware that they are competing with other buyers to buy your home. So when you use a real estate professional and you are openly listed on the MLS this is usually what happens:
- The buyers are fully prepared to buy with down payment money and a pre-approval for a mortgage.
- They have spent time in the marketplace and know they need to react quickly.
- There are professional real estate agents on both sides of the transaction moving the process along. Yes we do have value :).
I Have a House to Sell, How do I Avoid This Common Trap?
So you find yourself in this situation, what do you do?
- Give clear and tight deadlines. If someone wants to buy, there should be an official offer in writing that will become a legal and binding contract once the contact is signed. This should happen with in hours or a day or two of expressing an interest. If a week goes by with no contract they are not a valid buyer…. plain and simple. Set very clear boundaries. When I am approached by home sellers that are going through this scenario. I tell them to give everyone 10 days to two weeks to get there documentation and offer together. Very rarely does anyone come forward.
- Understand the basic law. While real estate professionals are not lawyers, we do have a basic understanding of contract law and fair housing laws. Not having an understanding of such can get you into trouble, like the homeowner I mentioned earlier that accepted two offers on a property. He ultimately was sued by both parties, because he signed a legal and binding agreement to sell his house. One house but two buyers.
- Know the process so you can keep the process moving along.
- Remove any emotion. I probably should have mentioned this before, but I didn’t. Many of the buyers that come forward will play on your emotions. It can be the neighbor next door and they want their daughter to live in your home or you would love to see your nephew buy the house. As a seller you probably have an emotional attachment to the house. Don’t get played. Its strictly a business transaction.
- Hire a real estate agent. I have stepped in to some of these deals where I work on a reduced commission if the seller already has a buyer and I do not have to market the property. Usually what I do is end up flushing out that the buyer is not a serious buyer.
- Hire an attorney. And when I say hire an attorney, hire a real estate attorney whos primary business is real estate.
One last tip. A verbal contract is legal but it is not enforceable. This where a lot goes wrong. One party has one idea and the other party has another idea. Miscommunication. So what does this mean. You can verbally agree on anything but if it comes down to a judge deciding they cannot enforce a verbal contract. Get it in writing.
This post, Have a House to Sell? Avoid this Common Trap!, was written by Kevin Vitali of EXIT Group One Real Estate- 978-360-0422.
If you are thinking of buying or selling in Essex County or Northern Middlesex County Massachusetts, give me a call. I have the experience to help you.