Commission Removed from MLS

Aloha OahuRE.com Client,

As you probably know through the news, the National Association of Realtors has reached a settlement where buyer’s agent commissions will now be negotiated for all offers.

As of August 12, 2024, our MLS will remove any offer to the buyer’s agents to pay a commission, and going forward, there will be no reference to a guaranteed commission as there has been in the past.

Client Care will be sending out a form to sign stating this, as the Hawaii Association of Realtors wants to make sure all sellers are aware of this.

When you receive an offer, you might receive a request for a specific commission, and you can now negotiate it just like every other term on your offer.

I know some of our sellers have already chosen to negotiate commission, but now all listings from all sellers nationwide will negotiate commission.

Please keep in mind that along with this change, buyers will not be able to see a home with a realtor without signing a representation agreement that promises to pay that realtor a certain amount. The amount can be a fixed fee or a percentage of the contract price.

The buyer’s agent is not allowed to collect anything over this fixed amount from anyone. This is important, as this will prevent Realtors from saying they will show a home for $10 or some other low amount because if they put that on the contract, that is all they can collect, no matter what.

This means if you decide not to pay the buyer’s agent a commission, the buyer must still pay their agent the amount they agreed to. 

This could be an issue as a buyer might be more likely to cancel escrow if they promised to pay 2% to their agent and the seller is not covering it.

I also expect a lot more buyers to want to see properties without an agent, which offers an opportunity for sellers to sell to a buyer without using an agent, and thereby not have to pay any buyer’s agent commission.

The reason for this is buyers are used to working with a buyer’s agent at no charge, but now, before they can work with a Realtor, they have to sign an agreement, and that agreement might stipulate they will pay the agent 2% or more at closing.

Putting myself in a buyer’s shoes, I would not want to sign an agreement like that right off the bat; I would prefer to see the house at an Open House or set an appointment directly to see it without any promises having to be made to pay a Realtor.

This could work to the buyer’s advantage too, because if a buyer comes to a seller with no Realtor, thereby no buyer’s agent commission has to be paid, and this is attractive for the seller, so it increases the opportunity for the buyer to have their offer accepted.

No one knows precisely how all this will play out. It is just speculation at this point. 

My recommendation is not to state verbally or via email how much commission you might be willing to pay. I think the best course of action is to get an offer, review the offer price, the commission requested, and all other details, then decide what to do and if you want to counter the offer price, the commission, or both.

Please let us know if you have any questions.

Thanks 

How to Get Your Offer Accepted When There Are Multiple Offers

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It is frustrating to lose your dream home when there are multiple offers. Here are some tips to help make your offer the one that is accepted.

Summary Check List

  1. How Many Offers Are There?
  2. Anything Special the Seller Needs?
  3. Understand Comparables Sales
  4. Decide on What Price to Offer
  5. Add an Appraisal Clause
  6. Add an Escalation Clause
  7. Pre-Approval
  8. Add the As Is Addendum – Learn More
  9. Cover Letter
  10. Agree to Not Ask for Repairs nor Credit During the Inspection
  11. Pay for Survey
  12. Pay for Termite Inspection
  13. Remove Cleaning Request
  14. Shorten Unilateral Extension
  15. Faster Close
  16. Rent Back Option

How Many Offers Are There?

First, you need to ask how many offers they have. The more offers, the higher your offer price must be. If just one other offer, you might win by going a little over the asking price, but if there are three or more offers, you will have to go a lot over the asking price to have a good chance of having your offer accepted. To get this number right, you have to know when they will review all offers. Perhaps when you make your offer, there is only one other offer, but they are waiting four days to review offers, and by that time, it looks like there will be ten offers, so you have to adjust your price accordingly and submit a new offer. Note that the more offers they have, the higher over the asking price you have to go.

Anything Special the Seller Needs?

You also want to know if there is anything special the seller needs in their offer. Perhaps a fast close, or rent back, or a long close, etc. If you can put those things in upfront, it makes your offer more attractive.

Understand Comparables Sales

You must understand the comparable sales because there is a chance the home was priced under the comparables, which is why there is so much interest. Comparable sales are critical to both buyers and sellers, which is why on OahuRE.com’s website, we emphasize making it easy to see similar sales, including not just sold listings but withdrawn and expired listings too.

Add an Appraisal Clause

If you know homes in that area are selling for $1,050,000 and the seller is asking under $1,000,000, there is a good chance the winning offer will be around $1,050,000 or higher. If you know the comparables well, you can determine the home’s value and offer accordingly.

When sellers get multiple offers over what they felt was their market value, they will be concerned about the appraisal. What happens if the appraisal comes in close to the asking price even if the offer is a lot higher? An appraisal clause is essential in a multiple offer situation. This clause states how much over the appraised value you are willing to pay. Depending on your down payment, you might need to put more money down if the appraisal is low.

For example, you might say you are willing to continue with the purchase as long as the appraisal is no less than $20,000 under your offer price. This means if you offer $800,000 and the appraisal comes in at $780,000, you won’t ask the seller for a price reduction, and you do not have the right to cancel. You can write it up where you will pay up to $20,000 over the appraised price up to your offer price. This way, if the appraisal comes in at $770,000, the seller knows you will buy the home for $790,000. You can see why the appraisal clause is attractive to sellers.

We are also seeing appraisal clauses with no limits. For example, the clause just states the buyer will continue with the purchase regardless of the appraised price.

I have seen many sellers go with the offer with the highest appraisal clause, and they counter that offer to match the highest offer they received that did not have the best appraisal clause.

Add an Escalation Clause

The way the escalation clause works is you state you will pay up to $X over the highest competing offer, and the seller will have to present that offer to you as proof of the higher offer.

Normally I don’t recommend an escalation clause because most of the time they do not work. However, I see many Realtors using it, but as we sell a lot of properties representing sellers and I see it failing most of the time.

There are times when it can be helpful. For example, with a high-priced property, if you are going to escalate $50,000 or $100,000 over the highest offer, that will catch the seller’s attention and could work. This assumes you already have an appraisal clause in place, and a large down payment so they understand you can easily afford to pay $50,000 to $100,000 more and it will not push you out of your comfort zone.

What I have noticed is normally, the seller will go with the highest offer. The reason for this is they have a feeling by pushing a lower offer higher, they are pushing the buyer out of their comfort zone, so they are more likely to ask for credit or cancel during the inspection. The higher offer is already comfortable enough to make that offer, so they do not have to push them outside their comfort zone; therefore, they are less likely to ask for credit or cancel during the inspection.

However, if your offer is close to the highest offer, it has the best appraisal clause and has the escalation clause, then there is a good chance the seller will activate the escalation clause and accept your offer because they like your appraisal clause.

Buyers should not think they can offer a lower price because the escalation clause is in place. That is a strategy that will not get your offer accepted.

Pre-Approval

A pre-approval is a must-have item for any offer, and without one, the seller will not even consider your offer. It is nice if it states your credit, income, and cash were verified so the seller has confidence your loan will close. Also, Realtors and sellers prefer working with local banks vs. mainland banks, which could be important.

Cover Letter

You could include a cover letter, perhaps with a picture of your family, but this is not a huge factor in the seller choosing your offer. These letters are not recommended by the National Association of Realtors because of potential discrimination issues, so some seller’s agents might not accept them, but you can always submit one and leave it up to the seller’s agent if they will present it.

With our $3,500 Flat Fee Selling Option, sometimes the sellers prefer to do the showings themselves rather than use a lockbox, and in that case, they meet all the potential buyers. They tell me they have good feelings about certain buyers, so if you get a chance to meet the seller, keep that in mind. The last thing you want to do is give any negative feedback or energy about the house. Nothing turns sellers off faster than a complaint about their home.

Additional Things to Do

There are other smaller things you can do such as; add the As Is Addendum, agree not to ask for repairs or credit during the home inspection (you still have the right to cancel), pay for the survey, pay for the termite inspection, remove the cleaning request, shorten the unilateral extension period, offer a faster close, and offer a free rent back to the seller if they need a couple of extra days to get out of the home after closing, and put in a seller credit they can use for their closing costs. However, these things are icing on the cake. The appraisal clause and the price you offer will be the two biggest factors in their decision.

How to Get Your Money Back When Canceling Escrow

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How to Get Your Money Back When Canceling Escrow

Many times buyers have to cancel during the escrow process. The most likely reason for canceling is they are not satisfied with the inspection. Another reason could be they do not like something they found out on the disclosure statement. The 3rd big reason for canceling is they can’t get the loan.

If they have not breached the contract, then the buyer is should get their money back. For example, if they cancel using one of the reasons above, within the time frames allowed in the contract, then they should get all of their money back.

However, if they miss a deadline they no longer have the right to cancel using that contingency. For example, if the inspection is over, they have accepted it by default and they can no longer say they did not like the inspection and want to cancel.

If the Buyer and Seller Can't Agree on Releasing the Deposits Mediation Is Used. Most Times 
They End up Splitting the Deposits.

This sounds easy enough, but it can be tricky in certain situations. For example, say there are 3 days left on the inspection, and the buyer requests some repairs. Now the buyer is waiting for the seller to get back to them. If the seller does not respond within 3 days, then the buyer has lost their ability to cancel because the inspection period is over. To prevent this the agent needs to keep track of the deadline and if it is approaching they need to try to extend the inspection period. If the seller does not respond to the extension request the buyer can decide to cancel or continue, but if they continue past those 3 days with no extension then they have lost their right to cancel because of the inspection period.

In some cases, there are still other ways the buyer can cancel even if their inspection period expired without a resolution. For example, perhaps they did not yet get the disclosure, or they have 10 days after receipt of disclosure to decide to continue or cancel. This gives them another out, so even if the inspection period expires, they could use the disclosure contingency to cancel. However, if the seller gets the disclosure to them day 1, then normally their disclosure contingency will be over before the inspection ends.

The finance contingency sounds simple enough in terms of a reason to cancel. If you can’t get the loan a buyer feels they have the right to cancel. However, there are deadlines in the finance contingency, and if you miss a deadline, just like the home inspection contingency, you lose your finance contingency. This is very tricky because the buyer’s agent might claim the buyer must cancel because of financing, but the seller’s agent might claim they lost that right because they did not deliver the conditional approval on time. So buyer’s agents have to watch this one closely to make sure the buyer stays within the timelines in the contract so they do not lose their ability to cancel if they can’t get the loan.

In our Standard Addendum, we added a paragraph to help with the finance contingency cancellation. It states if you can’t get the loan, you can cancel and get your money back. There are no time constraints in this paragraph, so it runs throughout the escrow and if it is part of the contract the buyer can cancel at any time if they can’t get the loan.

Escrow Will Not Return the Buyer's 
Deposits Without the Seller’s Approval

One other very important point to understand about escrow giving the buyer’s money back. Escrow is a neutral 3rd party. They will not make any decisions on the contract and who is right and who is wrong. So they only refund the buyer’s deposits if the seller also signs off on it.

This can be a problem at times. For example, say the buyer can’t get the loan and the buyer’s agent says everything was done on time so the deposits should be refunded. However, the seller’s agent disputes this and says the buyer lost their ability to cancel so the seller will not sign to give the buyer’s money back.

As escrow will not decide who is right and who is wrong they will hold onto the deposits until an agreement is reached. Many times this type of thing goes to mediation to help resolve it, and many times the deposits end up being split in some way between the seller and buyer to get them released.

Escrow Will Not Return the Buyer's 
Deposits Without the Seller’s Approval

Why Does Every Broker on Oahu Have Their Own Standard Addendum?

A Broker’s Standard Addendum is designed to reduce the liability for the Broker.

For example, paragraph one of the OahuRE.com Standard Addendum states that Brokers are released from any liability in areas in which professional services have been recommended and where we are not experts. The termite inspection is an example of this. We always recommend a termite inspection from a professional inspector, and we are not qualified to do one. The termite inspectors are really good and I can’t remember ever having a home with live termites where tenting was not recommended because the inspector did not notice the infestation, but if a mistake was made we are not liable as the buyer picked the inspector and the inspector would be liable for any mistakes made. Inspectors normally have a clause in their contract that states their liability is capped at the total amount spent on the inspection, and I have seen cases where the home inspector refunds the inspection fee.

Scope of Service from OahuRE.com Standard Addendum

The Standard Addendum also gives the buyer some more ways to cancel, which again reduces the liability for the Broker.

For example, if the termite inspection finds a live infestation or damage the buyer could cancel the contract. This right is the OahuRE.com Standard Addendum, but not in the standard Hawaii Purchase Contract. This right is important because buyers might be uncomfortable with the extent of the termite problem the inspector finds and should have the right at that point to cancel.

Termite Inspection cancellation right in OahuRE.com Standard Addendum

Another area we want to make sure the buyer has the right to cancel if they can’t get the loan. While the Hawaii Purchase Contract also gives them this right, it is a bit confusing as there are certain dates that must be met, and if one is missed the seller could claim they waived the financing contingency and try to keep the buyer’s deposits even when they can’t get the loan. On the OahuRE.com Standard Addendum, we give the buyer the right to cancel if the loan does not come through or the appraisal is low and we do not restrict the time period they can do so. This means the seller can’t claim the buyers lost their right to cancel because they missed a deadline in the Purchase Contract.

Finance Contingency in OahuRE.com Standard Addendum

In many cases the seller’s agent will counter the offer to replace our Standard Addendum with their own Standard Addendum which they are more comfortable with. We do not have an issue with this. It happens a lot, and the buyer still has all their rights to cancel built into the contract and I have not seen any Standard Addendum that removes the buyer’s right to cancel and get their deposits back as stated in the Hawaii Purchase Contract.

Sellers in Buildings With Special Assessments Must Review F-8 on the Hawaii Purchase Contract

If there are any special assessments that being paid monthly paragraph F-8 is very important. Buyers will want sellers to pay any lump sum assessments prior to the Acceptance Date. They might want sellers to pay off any special assessments they are paying monthly on.

Sometimes this can be a lot of money depending on the size of the assessment, so if there is a special assessment being paid monthly sellers might want to ask that the buyer keeps paying that assessment after closing rather than paying the entire assessment at closing.

Reviewing this is critical because you don’t want to think the buyer will keep paying the assessment, then once in escrow you find out you need to pay $10K to $20K extra to pay off the special assessment.

Regarding paragraph c this rarely happens but if it does and an agreement is not reached the buyer has the right to cancel and get their deposits back.

Cleaning Prior to Closing Is Required When Selling a Home

Cleaning Prior to Closing Is Required When Selling a Home

If the 2nd blank is checked then a professional cleaning is needed for the entire home with receipts provided to prove it was done.

If the 2nd blank is not checked then only the carpets need to be professional shampooed. The other cleaning items can be done by the seller or a professional cleaning service.

We suggest using a professional service even if it is not required. Sellers have enough to worry about without having to worry about cleaning, and many buyers are not satisfied with the cleaning that sellers do themselves.

Understanding Surveys on Oahu

Understanding Surveys on Oahu

We always check K-2 for our buyers. It is a complete survey. K-1 is normally NA. For condos surveys are not possible. If the home is a CPR sometimes surveys are possible and sometimes they are not possible.

K-3 Boundary Encroachments

If a property has encroachments most of the time to buyer will continue anyway.

Most encroachments have been in place for years without an issue, so the new buyer will accept them.

Sometimes they want the seller to try and get an encroachment agreement and if so the attorney at escrow can draft one.

Encroachment agreements are not automatic, the neighbor must sign it, and many times they are not willing to do so.

The buyer can terminate the Purchase Contract if they are not comfortable with the encroachments and the seller is not able to get an encroachment agreement signed by a neighbor.

When Sellers Have to Move Out

When Sellers Have to Move Out

Paragraph J-8 shown below dictates when your stuff needs to be out, but it specifically says you can stay there until closing, although with all your stuff out of the house it is more like camping in your own home should you decide to stay until closing.

Some agents will say 5 days for J-8 as they want to conduct the final walk through with everything out of the property.

Before sellers plan to move out they should have their agent confirm the closing date. If the buyer decides they need an extension to close, there is no sense moving out 5 days prior to closing. For example, most extensions are 10 to 15 days and the buyer can automatically choose to extend. If there is a 15-day extension, and the seller moved out 5 days prior to closing, now the seller is out 20 days prior to closing. As there is no guarantee the buyer will close, moving out too far ahead of time could be an issue if the buyer ends up not closing.

Each seller has to make the decision on when to move out based on the contract and based on their personal situation in terms of where they are moving to.

Unfortunately there is a risk for sellers if they do fall out of escrow they could end up paying rent at their new place plus their mortgage payment, or 2 mortgage payments if they bought a new home. To prevent the two mortgage payments situation many sellers make the purchase of their new home contingent on selling their current home. This way if the home they are selling falls out of escrow, they are not obligated to buy the new home.

Additional Search Terms: Removal of Items from Property, J-8, J8, trash, junk, personal belongings

The #1 Reason Escrows Are Cancelled Close to the Closing Date

The #1 Reason Escrows Are Cancelled Close to the Closing Date

Escrow is most likely to fall out during the inspection period, but that happens early on in the escrow, normally within the first 2 weeks. After the inspection is approved and you are getting close to closing the most common reason escrow is cancelled is using the financing contingency.

Simply put, if the buyer can’t get their loan there is no way they can close. As long as they have not breached the contract prior, they can cancel and get all their deposits back.

This type of cancellation is the most frustrating for the seller, because the seller might have already moved out, rented or purchased another place, or maybe has a place in escrow and is counting on the funds from the home they are selling.

As bad as it is, there is really nothing that can be done when the lender says they can’t fund. You could look for another lender, but most likely the same reason the current lender can’t fund will come up and be an issue with another lender too.

One would wonder how the buyer got pre-approved only to find out they now can’t get the loan. Various factors can contribute to this, such as job loss, change of jobs, surprise on the tax returns, surprise liabilities, low appraisal, etc.

So what can a seller do to prevent falling out of escrow at the last minute from the finance contingency?

Typically the more money a buyer is putting down the less likely they are to fall out. Also you want to make sure you have a pre-approval, hopefully from a local lender, and you want to make sure they meet all the finance contingencies on time.

The biggest contingency is the conditional loan commitment letter. If this is late it could be a sign that the lender is having trouble committing to the loan and the reason it is late should be looked at closely.

We use 12 days before closing for the buyer to get the conditional loan commitment letter.

Getting a conditional loan commitment letter on time is one thing that is out of the buyer’s hands and relies on the lender.

Keep in mind if the lender is going to be late an extension must be requested, otherwise the buyer has breached the contract and the seller may elect to terminate the Purchase Contract.

If the buyer misses any of their loan deadlines the seller can cancel. However, normally it makes more sense for the seller to inquire as to why the deadline was missed and provide the buyer extra days if needed to prevent having to start again with a new buyer.

Low Appraisals – If the appraisal is low the first thing to do is to get a copy of it to look at the comparables used. Getting an appraisal changed is very difficult. If you have a strong issue with one of the chosen comps you can bring it up with the buyer’s agent and the buyer’s lender. Appraisers will have very good arguments on why they did what they did. Their job depends on doing it right, so they will be prepared to back up the appraisal. Having a bad appraisal is like saying they do not know how to do their job. That is why it is so difficult to get one changed.

If the appraisal is not changed the buyer will most likely request to pay the appraised price. Sellers can either accept this request, negotiate, perhaps to something mid-way between the appraised price and the Purchase Contract price, or stick with the price on the Purchase Contract.

If the buyer can’t get the loan at the Purchase Contract price because of the low appraisal, then they would have the right to cancel. If they can still get the loan even though the appraisal is low, then they do not have the right to cancel using H-3.

Finance Contingency

Additional Search Terms – Finance Contingency, H1, H2, H3, H-1, H-2, H-3

Use the Disclosure to Prevent Getting Sued

Use the Disclosure to Prevent Getting Sued

A complete disclosure is the most important thing a seller can do to protect themselves from being sued in the future.

The rule I go by for the disclosure is if you must think about whether an issue is important enough to disclose, then you should disclose it.

The rule our attorney gives us is you won’t get sued for something you disclosed, it is only when you don’t disclose something that you could get sued.

Almost all lawsuits from unhappy buyers have to do with something that was not disclosed.

There is a comprehensive disclosure statement with many questions that sellers will answer and provide to the buyers, normally within 10 days after acceptance.

If a new disclosure comes up, or one that makes a previous disclosure statement not accurate, and this disclosure substantially affects the value of the property, then the seller needs to provide an Amended Disclosure Statement to the buyer. Substantially is a keyword as minor issues that can easily be fixed do not create the need for an Amended Disclosure Statement.

If the buyer is not satisfied with the disclosure statement or amended disclosure statement, they have up to the number of days in I-3 to cancel the escrow and get their deposits back.

The “As Is” Conditional Addendum does not change the seller’s responsibility to disclose everything.

So sellers make sure you disclose everything. This is the most important thing you can do to make sure you are not sued after the sale closes.

View Complete Hawaii Real Property Disclosure Statement

Additional Search Terms – I1, I2, I-1, I-2