By Mike Bodeen · 17 October 2022
When I began my real estate career in the mid 70’s, brevity and simplicity was the rule. Sellers were king! Those were the days of one-page real estate purchase contracts with lots of open lines for agents to write the deal down – an improvement up from doing a deal on a restaurant (or bar) napkin, which was not unusual – darn near a handshake.
The Multiple Listing Service (MLS) was just getting started back then, and prior to that, co-operation between brokers to show their listings to other agents outside of their own company was like pulling teeth. My first office was at Donner Lake in Northern California. My broker was Donner Sierra Realty. Our main competitor was Donner Lake Realty. It was sort of cutthroat business between our companies.
* A home currently for sale on Donner Lake for $949,000.
Perhaps most states have amended their residential real estate contracts to be fair and consumer centric, not just favoring sellers, which was certainly the case back then in 1976. When I moved from Truckee in 1994, the standard purchase contract had ballooned to 10 pages plus addendums. Even though the state of Confusion, uh, California, allowed brokers, back then to draw up purchase contracts instructed, lawyers made it clear that their agents should not attempt to explain the contract.
Things have changed. In my opinion, the state of Arizona is leading the nation in the development of fair and understandable purchase contracts. One important example of this is the Due Diligence (inspections) section of the agreement. This allows a buyer 10 days from the formation of the contract to investigate the property in whatever ways they want. Physical, legal, price, civic and many more ways a buyer can do whatever they feel the need to do to be comfortable moving forward in the deal.
With the market transitioning from a seller’s to a buyer’s market we’re finding a large percentage of deals falling through. As an example, last week (October 9th) 1308 homes went under contract, while 325 deals fell thru – 25% homes went back on the market! (See Chart below. Blue represents Accepted Contracts. Orange represents homes back-on-the-market)
Buyers are feeling emboldened to negotiate the deal using the Due Diligence out-clause. The contracts stipulate that for any reason – and there does have to be a reason, the buyer can cancel (walk) from the deal with no forfeiture of their earnest money deposit, which is typically 1% of the purchase price. But at the end of the 10-day period, the buyer’s deposit usually goes hard – non-refundable, except for financing contingencies.
Even though this is a real bummer for sellers, over the years this clause has provided buyers of Arizona real estate peace of mind in making their offers, knowing they’re not locked in.
It benefits sellers and Realtors too. If a deal is going to go south, wouldn’t we rather have that happen at the beginning of the deal rather than 3 days from closing?
Works for me!