As published in the Savannah Morning News - 28 April 2013
Sellers get “cold feet” too
It’s a sign of the times…the market appears to be coming back, and sellers are questioning their decision to sell now. I may be having a flash back! This happened often in the early 2000’s when I was selling nearly 300 homes a year and I was trying to make sure I listed the property high enough to not leave money on the table. Appraisers were calling asking why I was setting my sales prices so high, and I had to explain that if I did not, by the time it closed, we would have sold it too cheaply. Those were the days.
I’d give my eye teeth to see that market again, but it probably won’t happen in my lifetime. The recovery we are seeing today is a slow, steady decrease in inventory and increase in sales prices. It’s the old rule of supply and demand, and it is again becoming a seller’s market.
Along with that, comes doubt. Sellers are hesitant to take their first offer, even when it may be the best one they get. They are wondering if they can hold on another year, if their home will be worth more. Maybe, or maybe not. The economy is shaky, and no one has a crystal ball.
Recently, I had a sale fail to close due to seller’s remorse. Our office attorney told me that 8 sellers had called him in the previous 2 weeks asking how they could back out of their contract. I thought, oh no, it’s happening again! This isn’t the early 2000’s, and a good comparative market analysis or appraisal should ease seller’s fears. Pricing a home is not an exact science, but there is a market price “range” into which the property value lies.
My buyers were devastated—the wife was literally crying in my arms, and the husband was furious. I can’t tell you how bad I felt for these people. They suffered damages: they paid for an appraisal, inspections, but most importantly, they missed an important deadline to close, after which FHA raised their mortgage insurance rates causing that cost to double every month. Fortunately, the movers had not packed the house, and could have been waiting to unload. Yes, that happens when closings fail on closing day.
It is assumed that the buyer gets enough time to decide whether they want to buy a property—time for inspections, time to get mortgage approval and insurance on the property, time to back out. The Due Diligence clause in the Purchase and Sale Agreement is typically between 7 to 14 days on a residential purchase. It’s a “free look” at the property, and the buyer can choose to walk away before the expiration of the due diligence period and, in that event, their earnest money deposit is returned.
So what about the seller’s ability to withdraw from a fully executed Purchase and Sale Agreement? There is no due diligence period for the sellers. It is assumed the sellers made the decision to sell when they signed a Listing Agreement with their Realtor®. These are legal and binding contracts, and both parties are obligated to perform under the terms held within. If either the buyer or seller decides not to go through with the sale after all contingencies have been met, there are potential legal repercussions for the party that has failed to perform.
Can a buyer force a sale when a seller decides not to close? Potentially, they can hire a lawyer and take the seller to court. Additionally, the seller often owes a sales commission to the Realtors® who have also performed, and brought the seller a ready, willing and able buyer. It is up to the Broker to decide whether to legally seek the commission from the Seller, and it is up to the buyer to sue the seller for damages. Both can happen.
So sellers, know that when you put your house on the market, and you reach a written agreement with a buyer to sell, you can choose not to close, but there are legal ramifications that could cost you thousands of dollars. It’s best to go into a sales transaction with your eyes wide open, and the decision to sell a foregone conclusion.
Next week in Moving Mom…Foreclosures and Bankruptcies—“seasoned” buyers are back. Stay tuned!