The Tale of Two Home Listings - Part 2

Two homes in the same subdivision. Both were:

Dated from a style perspective,

Structurally sound, but a bit run down,

Both sold at a distressed price due to the condition they were in.

The buyers of the first home completely renovated it: roof, HVAC, floors, doors, fresh paint, updated bathrooms and kitchens. They did an incredible job. It looked like a new home. It went back on the market and sold for over $200,000 more than what they bought it for.

The buyers of the second home did relatively little to update it. They did replace the roof and some of the windows, but the HVAC was near the end of its useful life, and from a style perspective it actually got worse - they painted some of the rooms some very dark colors - and the home already had many of the rooms with dark colors.

They listed it for over $200,000 more, and it has been on the market for almost 3 months now.

The lesson - pricing matters. It’s a seller's market, but sellers can’t just name their price. Buyers don’t want to overpay.

The Tale of Two Home Listings

It was the best of listings. It was the worst of listings.

It was a home that sold quickly for a great price. It was a home that sat on the market with an uncertain future.

It was a price of wisdom, and a price of foolishness

Two very similar homes in the same golf community. Both were located on the fairway.

The first listed for about $520,000 - a price supported by recently sold comparable homes. It went under contract the first weekend it was listed and settled for $575,000.

The second, which was 300 square feet smaller, went on the market less than 6 months later. It was listed for about $630,000 - a price not well supported by recently sold comparable homes. It is still sitting on the market with little interest. It’s future …. uncertain.

I doubt it’s what the sellers had hoped for.

The point of this story is to emphasize how important pricing is. The housing market heavily favors sellers, but that doesn’t mean sellers can name their price.

To get the most for their homes, sellers still need to be as smart and as sharp as if they were in a market that heavily favored buyers

What Constitutes Breach of Contract for Home Buyers and Sellers??

Paragraph 23 the standard offer to purchase 2-T identifies remedies for both the buyer and the seller in the event of a breach of contract.

But it’s only for a MATERIAL breach of contract.

Not every term in a contract is material, and a party’s failure to fulfill a non-material term will not be considered a breach.

The remedies in most circumstances will be retention of the due diligence fee and earnest money deposit by the seller. For a buyer, they can elect to terminate and recover the due diligence and earnest money deposits, along with any other costs they may have incurred - such as inspections and loan fees.

With regard to what is material, North Carolina Law gives criteria to help determine what constitutes a material term of a contract, but there’s no list.

A realtor can advise, but they can’t give you a definitive answer. It will often be wise to consult an attorney, but ultimately a definitive answer may not be able to be reached until you go to court or abitration.

Is the home seller responsible for turning on disconnected utilities?

If a property has had its water and electricity disconnected, is the seller required to bear the cost of turning on water and power once under contract so the buyer can conduct due diligence?

If standard offer to purchase form 2-T is used - - yes.

Paragraph 8c) discusses this scenario, saying that the home seller shall provide reasonable access to the property, including providing existing utilities operating at the Seller's cost, including any connections and de-winterizing.

If the parties involved don’t wish to have the seller pay for this cost, an addendum would need to be added to the contract to sell this out.

Can a home seller sell propane from their fuel tank before closing?

If a property has a large propane tank that has just been filled. If a home seller lists the property for sale, and they accept an offer, can they remove some of the propane before closing?

If they use standard offer to purchase 2-T - - no.

Paragraph 7d) states that the seller may use the fuel to heat the home, but they may not otherwise remove the fuel and resell it.

In this case, the seller should factor the cost of the fuel into determining the offer price they will accept, or better yet, don’t fill the fuel tank all the way before they put it up for sale.

Home Offer Contingencies not standard in North Carolina

Generally speaking, a contingency is part of an offer to purchase a home that must be met before the offer can be finalized. If it is not met, the buyer will normally get their due diligence fee and deposit back.

Examples could be: 1) an offer contingent on a buyer selling their existing home first, 2) the home appraisal being at or above the offer amount, 3) contingent on the buyers loan being approved 4) contingent on inspection results, etc

However, in North Carolina contingencies have not been part of the standard offer to purchase used in most transactions for a number of years now. So they don’t happen very often.

They are not illegal, but you would have to pay to have an attorney prepare a custom addendum for your transaction. And because it is a seller's market, in a competitive situation, a seller is less likely to accept an offer with a contingency - - everything else being equal.

Home appraisals are subjective

Lenders will require an appraisal for most home purchases, and they won’t loan more than the amount of the appraisal.

Unfortunately, home appraisals are subjective. 3 different appraisers could come up with 3 very different appraisals for the same home.

BEFORE you make an offer on a home, make sure your realtor performs a comparative market analysis of recently sold comparable homes. Have them show it to you and review it with you.

A realtor will not be able to guarantee that your home will appraise for what you offer, but they could give you a better feel for the overall risks.

This will mitigate the chance that you will make an offer on a home that is more than the appraised amount.

A low home appraisal could put you in a negative equity position

One other implication of a low home appraisal is negative equity.

If the home appraises for less than what a buyer offers, the buyer would be in a theoretical negative equity position - where the value of the home is less than what they paid for it.

If they need to sell the home in a year because of a job loss or some other event, they could end up losing money on the home.

I say theoretical negative equity, because it could be a situation where you just have a bad appraisal. The appraised value is subjective.

It’s definitely something to think about before making an offer on a home that has a higher likelihood of being above the appraised amount

A low home appraisal could cause a buyer to lose their deposit

When someone uses a loan to help them buy a home, the lender will send an appraiser to estimate the value of the home.

The lender won’t loan more than the amount of the appraisal.

If the home appraises for less than what a buyer offers, the buyer will need to cover the shortfall with an additional cash deposit.

If they don’t have the additional cash, they won’t be able to complete the transaction. They’ll lose the due diligence fee they paid, and depending on timing, possibly their earnest money deposit and any inspection or bank fees they’ve already incurred.

Be sure your realtor does a thorough analysis of recently sold comparable homes before you make an offer.