Let me start out by saying I am not an Attorney, I’ve never played one on TV and, since we were very lucky during New England’s recent October Nor’Easter and only lost power for one night, I haven’t even stayed at a Holiday Inn recently. However, as a Real Estate Agent in Southern New Hampshire and Northern Massachusetts I believe I have an obligation to have a working knowledge of the legally binding contracts that are part and parcel of the buying and selling of real estate.
I am beginning to think I am alone in that belief.
Let me be clear here. I am not talking about practicing “law”.
I am talking about having a clue about what it means to the buyer or seller you are working with when they sign a Purchase and Sale Agreement. I am talking about making sure they understand what they are agreeing to, beyond price.
I am talking about, at the very least, understanding who the parties to the contract are.
Apparently there are still real estate agents out there who are unable to differentiate between a Short Sale Listing and an REO Listing (otherwise known as a Foreclosure) Listing.
For the sake of clarity, let me explain the difference here.
A Foreclosure or REO listing is a property that is owned by a bank. A foreclosure auction has already taken place and the bank was the high bidder and now owns the property. And, wishing to sell the property, they hire a real estate agent and place it on the market.
A Short Sale listing, on the other hand, is a property that is still owned by the homeowners. So, although the homeowners owe more on the property than they could sell it for and, therefore, need their lender to agree to accept less than the full amount owed as a payoff of that loan in order to be able to go forward to closing, it does not change the fact that they (and only they) own the property.
In a Real Estate Contract the parties to that contract are the Seller (who, legally, must be the party that owns the property*) and the buyer. (*setting aside situations in which there is a Guardianship or Durable Power of Attorney which have no bearing on this discussion)
In the State of New Hampshire, the “effective date of the contract” is the date that “all parties to the contract” have signed and everyone has been notified.
As a consumer you may not be familiar with these terms and their legal definitions but your Real Estate Agent certainly should be.
Unfortunately, that is still not always the case. I’ve had a number of incidents recently where the Buyer’s Agent did not grasp these important distinctions and therefore misrepresented their client’s intentions in the initial contract. This could have been disastrous and potentially caused the Buyer to lose their Earnest Money Deposit had I not uncovered the other agents’ confusion early on.
In one instance, the agent sent me a contract that acknowledged that the property was a Short Sale; allowed 90 days for Short Sale Approval and agreed that home inspection, financing application, appraisal and loan approval would take place within so many days of the “effective date of the contract”.
Remember, the “effective date of the contract” is the date that the “parties to the contract” sign and everyone is notified. Remember also, in a Short Sale the homeowner still owns the property. So, the only parties to the transaction are the “Homeowner-Seller” and the “Buyer”. So, in effect, this contract said that the buyer would have home inspection and go forward with financing and appraisal, etc. prior to Short Sale Approval.
Now, this is absolutely the best way to do it, and the only way my Short Sale clients will agree to accept an offer, so great…right?
It would have been great except that is not what the buyers were actually willing to do. They did not want to have home inspection or go forward with financing until after Short Sale Approval but because their agent did not understand the difference between a Foreclosure Listing and a Short Sale Listing she thought the Seller’s bank was “a party to the contract” and would eventually sign the P&S.
WRONG!!! The seller’s bank is NEVER going to sign the Purchase and Sale Agreement. They don’t own the property. They are NOT a party to the contract. What they will do, if they agree to a “short sale”, is provide a DEMAND Letter which details the terms under which they will accept less than the full amount owed as a payoff.
Her lack of understanding caused her to write a contract that was in direct opposition to what her client’s actually wanted. Had my client signed that offer as written the buyers would have been in default, and in danger of losing their earnest money, when they refused to go forward with home inspection, etc. And, my clients would have lost valuable time by being tied up with buyers who had no intention of doing their part to move the contract forward to a successful conclusion.
It could have been ugly.
If you are looking to buy or sell real estate, do yourself a favor, make sure the Agent you work with has a clue.