Home Buying in Santa Clara>Question Details

saeley, Home Buyer in sunnyavle

help for executing plan for puchasing a property in bay area, CA

Asked by saeley, sunnyavle Sun Oct 14, 2007

Here is my plan.---
1. Do extensive research and narrow down at least 4 properties.
2. Prepare offer for all the 4 properties with whatever price I come up with my analysis.
3. Do hard negotiation on all 4 properties and try to get offer accepted on all 4 properties.
4. Once all 4 offers are accepted, decide the best deal and take one offer and back off on other 3 offers.
5. How can I execute this plan with minimal out of pocket expense ?
My concerns
==========
1. What is the minimum earnest money required by law of California for making an offer ?
2. When exactly escrow company comes into picture ? How many days do I have to make my decision on one of the property and backing off on other 3 ? From the time the seller accepted the offer.
3. Any suggestions advice....to execute my plan. There are realtor's who says you have to put in a cheque for escrow while making an offer so that you can't back out. I don't understand this.

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Answers

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Hi Saeley:

I will just go to the basics. You may get realtor to approach you and say that they are willing to do this for you, because, yes, it's a guaranteed commission; and as you can see, you won't find many who is competing for your business because when it does not sound right, it is probably not right.

However, the truth is, you are not getting a great deal unless you find a house you like for the price you think is reasonable.

It really does not matter whether you are getting a $50K off from one house or the other, they are not going to be identical. You can get $50K from house one and $70K from house two, but you like house one better, then what do you do?

You are not going to find four houses to bid at the same time that are similar; unless you are getting something for investment and you just don't care which house you buy, other than price per square foot.

The best plan is to figure out (yes that comp word again) how much a house is worth (the one you like), and then bid on that. Don't buy it if you don't get the price you think is worthwhile for you.

You ARE going to cause pain to three sellers if you go into contract with all four, gave good faith deposit, and then pull out from 3 out of 4.

You can fish all you want, but that's the bottom line.

Sylvia
1 vote Thank Flag Link Tue Oct 16, 2007
Sylvia Barry,…, Real Estate Pro in Novato, CA
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It really worries me that you can't seem to see the difference between a seller marketing a property to as many buyers and a buyer entering into 4 contracts knowing full well that 3 of the 4 have no chance. How would you feel if a seller went into 4 separate contracts to sell the same property obviously with intent to only perform one of them and you are one of the 4 buyers but you don't know that the seller entered into separate contracts. I can assure you'd feel differently and think that there's something wrong with that especially after you spent your out-of-pocket money on getting inspections done.

It's not the act of making multiple offers at the same time for different properties that's objectionable. It's making multiple sellers believe that they have a bone fide buyer. Believe it or not, sellers take actions in reliance on contracts. They plan their move so that they can vacate the premises in time to hold up their end of the bargain.

By the way, I would not be so sure that your plan is not actionable. There's something called fraudulent inducement, which means that you induce someone to enter into a contract that you have no intent to perform. You should talk to your lawyer about the legality of your plan and the risk of being sued before you jump to the conclusion that your approach to getting a good deal is legal.
I have no problem with your desire to look out for your best interest, but don't do it at other people's expense.

Your most recent post makes me believe that you did not come here for guidance. Otherwise you would not talk about "hupla about good faith/bad faith/cheating and all that" after having read all the answers to your original "question." You are an adult and if you have not learned yet what decency and good faith are, I am afraid you are a lost cause. Just remember, what goes around comes around. It always does, you just don't know when it will happen.
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1 vote Thank Flag Link Mon Oct 15, 2007
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
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Swati, I need to ask you: are you planning to inform all the sellers of your plan? I know that unless I had no other buyer prospect, as a seller's agent I could not in good conscience advise clients to even begin negotiating with you on that basis. So are you planning to deceive them by not mentioning your plan?

Would you also propose to 4 ladies and after they each say yes, tell their friends and begin planning the wedding--that you're only going to pick one? That's how it would feel to the sellers--and IMHO the market and sellers in Santa Clara County just aren't desperate enough to make that approach reasonable here. In Stockton, perhaps.

I'm an accredited buyers representative and this strategy, while understandable from your point of view, raises an ethics concern. Although Sellers may take offers on one day hoping for buyers to outbid one another, the buyers are aware of the competition. You need to realize that for a seller to sell with a contingency then go back on the market simply because you picked another home, causes other buyers to assume you found out something wrong with that home, and that's why you backed out.

Most buyer agents I know are with you to the point of verbal negotiations, not getting multiple offers accepted--I myself advise against this kind of strategy-in RE, what goes around comes around, so think of how you would want to be treated before you act.

BTW, there are other ways to achieve similar results.

I've only experienced one situation where although I've seen
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1 vote Thank Flag Link Mon Oct 15, 2007
0 votes Thank Flag Link Sun Oct 21, 2007
Hi Saeley. Technically speaking, neither seller nor buyer can be absolutely certain that the deal goes through until escrow has actually closed and it is true that sellers are in a catch-22 situation as they know that the buyer can pull out at any time during the inspection period. It is, however, also true that the chances that the buyer will pull out are much bigger when there are three competing contracts. To say that the seller has no reasonable expectation that the deal will actually close until after the inspections are done and contingencies are removed, is ignoring realities. For instance, you expect the house to be available for all inspections, you expect that the seller remove anything that might block the inspector's access to areas that need to be inspected, you also expect that the seller does everything that he/she agreed to under the contract. If you are really confident that sellers will see it your way, then there's no harm done in telling them that they are not the only contenders. My guess is you know fully well that sellers will not agree to accept your offer once they know that they are 1 out 4 accepted offers. At least they'll want to have terms added to the contract that will protect them. For instance, if I were a seller, I would not be willing to take my property off the market. The most I'd be willing to do is put you on a 72-hour contingency clause. Actually, if I were the seller, I would tell you that you can inspect my house all you want and that I'd give you a first right of refusal. I would tell you to make an offer after you have had a chance to inspect. The only way you can know how a seller will feel about your plan is by disclosing it. To hide behind the inspection period and saying you can't rely on the contract closing is ignoring the fact that the probability of closing goes down drastically with the # of accepted offers and the seller is entitled to know what the true chances are. I think you are making finding a good deal more difficult than it has to be. Step back for a moment and think about other ways to secure a fantastic deal. Time is on your side as the market is not going to turn overnight and there's no need to ride several horses at the same time.
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0 votes Thank Flag Link Tue Oct 16, 2007
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
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Thanks for all the guidance. May be I did not word smith my points well.
Let me clear one point for all the people who have been raising concerns
for fraud, crime etc. I don't intend to cause pain to anybody. I don't intend
to do anything which law prohibits...I want to do everything in good faith... I
am just trying to figure out how to do that and that's why i am here.

There are couple of steps here ...
- making and offer,
- entering into contract.
- escrow payment
- termite/inspection etc.
- closing the deal

When does the seller actually considers the deal done lawfully ? Is it OK for seller to see a buyer's offer and consider that deal is done... There are so many other steps for the deal to close. Irrespective of good/bad faith, it may not be good idea for seller to plan his move, purchase of new home etc just because he/she accepted a offer from a buyer. I wouldn't consider the deal to be done unless buyer can't back off any more. This technically gives at least 1-2 weeks after the acceptance of offer.
0 votes Thank Flag Link Tue Oct 16, 2007
Hello Ssin:

First, let me dispute one thing - commission is not in this picture, as if you are interested in 4 properties and you will for sure buy one out of four, I will be making commission. So, the answer of no has nothing to do with commission.

Now that we cleared that point -

It is only not with good faith, if this is not disclosed to the sellers. Actually, I have been thinking about this more today to see how and if you can make this work.

If you can execute this plan all at the same time (assuming you can find 4 properties that you are willing to put an offer in), you will put in a certain date (use 3 days as example), some will reply to you in a day, and ask you to reply back within 24 hours, the others will take up to 3 days to ask you for reply.

Assuming you counter all 4 within the same time frame, and all four are mediorcre, then you won't go with either one. That's fine.

If one out of the four are outstanding, then you will accept that one and go with that. That's fine also.

If all four came out great, you are accepted by all four sellers and went into contract with all four.

One thing that's not fair for the sellers is that if they don't know this is what you are doing (then it's bad faith, and it's unethical); they will have to put the prooperty as contingenty, which practically take the house out of the market; while waiting for you to decide one out of four to buy; while they have no clue this is going on. This is unethical part.

if you are ethical and disclose the fact that you have offers on the other three, I serious doubt if the seller will go with you, same reason. So, that would not work.

Assuming the sellers are desperate, they know it's your plan - since you are doing GOOD FAIITH - ane they go with this. You will have three days to put earnest money in escrow. I am sure the sellers want more than $1.00 for good faith, especially knowing the situation - then you have to put 4 X $ to escrow. I don't think you'd be thrilled about that as you want to get something for nothing.

Now assuming you paid $4.00 for earnest money on 4 properties, you now have to do inspection ($700 for termite and home inspection, and another $400 or so for appraisal) on the house, find out potential problems, and then try to negotiate for the repairs, now you are out $4400 - not your original plan, so it would not work.

If you just offer and counter offer all 4 but select only 1 to go into escrow, then you are fine.

They problem comes in when you have more than 1 rectified contract, then you are either going to have to spedn more $$ to get all four inspected, or risk not getting the inspections and risk not getting the best deal in town when all is said and done.

So, the conclusion is you might be able to do good faith offers on all 4 house, but getting 4 into escrow, all with good faith, and tries to stay in all 4 escrow until inspectoin period is finished, then it wil be costly to you - against the rule you set.

So, either it is without good faith or it can cost 4 times money, so it'd be none executable under your model

Sylvia .
0 votes Thank Flag Link Mon Oct 15, 2007
Sylvia Barry,…, Real Estate Pro in Novato, CA
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Why do people think that this plan is not developed with good faith. One thing which I fail to understand is that is when seller is able to showcase his property and attract many offers and chose the best one from them, why buyer can't put multiple offer on different properties.... The only thing the buyer is trying to do is to get a best deal with least out of pocket expense. where is bad faith here ? Everybody is looking for good deal....!! Regarding backing off --- here is the thing - nobody is all done unless they really close the deal so just acceptance of offer should not be seen as deal is done....I agree that it is all good faith dealing but ....then...if deal is REALLY good, then it will get executed no matter what..what is this good faith bad faith thing ??

Also, when people pick up their school for eduction or even a job offer, they try to get a good deal before they really really close the deal on one school and one job....so what is this hupla about good faith/bad faith/cheating and all that...I think it is more of middleman/broker/commission agents which are creating this.... Everybody should instead believe that WHEN DEAL IS GOOD IT WILL BE DONE..no matter what..
It is not illegal or crime to protect your interest (out of pocket expense) while looking for BEST DEAL IN TOWN.
0 votes Thank Flag Link Mon Oct 15, 2007
Ssin,
Yes I do know agents in my office and in other offices near San Jose and Santa Clara that would be great buyer's agents for you.
0 votes Thank Flag Link Mon Oct 15, 2007
Mario Pinedo,…, Real Estate Pro in Beverly Hills, CA
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Hello Swati:

Great plan and wouldn’t that be great if we can all help our buyers do that. just not executable. Of course, you will find some agents - I refrain from using realtors in this case, as any reputable realtor would not do this - who is willing to do this for you for the shot of commission.

First, let me say this – part of the issues with a house is inspection, and you should do that before you decide which one is the best deal.

Let me see, just a few issues, as you probably should get an agent who has time to do this to give you their advice.

1) None disclosure on four properties, as no seller will want to take their property off the market while you are doing this if you disclose the fact this is what you want to do

2) Normally, GOOD FAITH money is 3% total, seeing you have no good faith, your agent will have to negotiate $0 deposit, another big red flag for sellers

3) They have to negotiate on all 4 knowing that they (and you) might be sued for none disclosure

4) You will probably need to have 4 escrow companies, because no good title company will want to open 4 escrows for you at the same time; Escrow has to be opened within 3 days of rectifying the contract, along with your good faith deposit.

5) None inspection for 4 properties, each inspection takes around $700 to do, will you be willing to pay for that? Inspection is part of bottom line negotiation. Will your realtor be willing to risk that, will you?

6) You will need to work with lender to get pre-approval letter on all 4 properties at the same time; wonder what lenders think about this?

This is only a few, but personally, I would not want to represent you because I could not with good conscience presenting this offer to sellers unless I disclose this, and I would not be able to sleep – I’d worry about how many small claims court you will have to go, my reputation and my license.

Best,
Sylvia
0 votes Thank Flag Link Mon Oct 15, 2007
Sylvia Barry,…, Real Estate Pro in Novato, CA
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Hi Swati. I have heard of some people doing this with bank owned properties and or short sales because some banks just take a very long time to respond and buyers dropping out during the waiting period is not uncommon. In short sales everybody knows that you don't have a good contract until the bank approves it. In those cases, it makes sense to make multiple offers and see which offer is accepted first, but there you would not want multiple accepted offers.

I also heard of someone doing the exact thing iyou propose in my market a few months ago and the agent who helped the "buyer" make all those offers was reported to the DRE (all offers were accepted offers without disclosure). I do not know whether disciplinary measures were taken against the agent, but what I can tell you is that the seller's agents were not happy with this particular buyer's agent and I would be very weary if I ever received an offer from her. I was not one of the seller's agents, but word travels and the agent's reputation has been tarnished in my market. As an agent, I consider my reputation as the biggest asset in my business. Having said this, I would not help you execute your plan without full disclosure to the sellers. There's something called "good faith and fair dealing" and what you propose lacks both elements unless you tell everybody that you intent to close only one property. If I were a seller, I would not be willing to take my property off the market until you have removed your contingencies. If you keep your options open, I would want to do the same thing as a seller.

While you can theoretically pay as little as $1 earnest money, as a seller I would not take you seriously unless you offered at least $5,000 or more depending on the purchase price (in the market that you are looking, there's probably nothing under $500,000 these days). There's a reason why it's called earnest money ( the money you put down indicates that you are serious). The check has to be deposited in escrow within 3 business days after acceptance. Once it's deposited, it can only be returned by mutual agreement as escrow only acts upon mutual instructions. You usually have 17 days to conduct your inspections. By the way, I would recommend that you have sufficient funds in your account for each check that you write.

As far as getting in an out of these offers with minimal out-of-pocket expenses are concerned. I suppose you can do your own inspections, but since you are asking us how to execute your plan, I venture to say you are not a seasoned real estate investor. So unless you are prepared to hire professionals to conduct meaningful inspections, I would not even bother making 1 offer let alone multiple offers as you most likely will not have sufficient information to make an informed decision. I would think that you'll have to except at least $500 - $750 in inspection fees per property.

Once you have conducted your due diligence inspections, you either have to remove your contingencies or submit a request for repairs. The timelines will be different for each property as it's unlikely that all of the offers will be accepted on the same day, which also complicates matters when you have muliple properties under contract.

In summary, I don't believe your plan is a good plan, but if you are prepared to go in with full disclosure, expect to have some out-of-pocket expenses for inspections. You can't have your cake and eat it too.
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0 votes Thank Flag Link Mon Oct 15, 2007
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
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Although it seems like a odd way to purchase a home, it it not far off from how most purchases take place. There are plenty of ways to get this done, without having to fully execute and open escrow. There are clauses and timeframes in the contract that enable you have options. You will need to work with a proffessional with good negotiating skills and can communicate to the seller that an immediate answer is required. The faster the response the more time you will have to decide on which property will give you the best deal.

There is a flaw in this strategy although due to the fact that getting the offer accepted is just the beginning. Most negotiation takes place after inspections are done and you are able to actually see whats under the hood so to speak. This part is key and will make or break a deal, due to the fact that you might find that there are more flaws to the property that need to be adressed.

It is almost impossible to go into contract with 4 deals that you plan on actually going through the inspection process. Escrow will have to be opened in this case and although you can negotiate a no deposit required for contract. It will be hard to do in all 4 cases, where you are working with 4 different listing agents and some will see your no deposit as a lack of motivation to buy your property.

There are many other options to make this happen, you will just have to make some small adjustments to your strategy. I think if you talk to the right savy agent that can pull this off, he will probably get the same results from other means. If you need some helo feel free to contact. Talking it out with a agent is your best bet with your strategy mixed with an experienced agent i know you will get the best deal.

Good Luck
0 votes Thank Flag Link Sun Oct 14, 2007
san jose, santa clara. around.. Do you know realtor's who may be comfortable with this strategy ? We really want to have very very minimal out-of-pocket expense unless we really move forward with the offer.
0 votes Thank Flag Link Sun Oct 14, 2007
Quite a lot to answer over a Trulia entry - although it is a strategy I suggest to all my buyer clients - including the ones in my car this weekend. We expect to make 3 offers at once and see where the best deal arises. There are guideline for deposits, although there are also ways to not make an offer with a deposit. Also, there are timeframes that will allow you essentially a "free look" at a property without commiting actual funds into escrow. You just need a savy Realtor who is comfortable with this strategy. Where exactly in the Bay Area are you looking and what type of home?
0 votes Thank Flag Link Sun Oct 14, 2007
Mario Pinedo,…, Real Estate Pro in Beverly Hills, CA
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