Tag Archives: termination

The “Bump” Clause

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The Wall Street Journal quoted me in In Cooling Housing Markets, ‘Bump Clauses’ Help Seal Win-Win Deals. It opens,

What to do when a home-seller gets an offer but holds out hope for something better?

Enter the bump clause.

A bump clause lets sellers enter into a contract with a buyer while still continuing to market the property. If the sellers get a better deal, they can “bump” the original buyer.

It’s most commonly used when a buyer’s offer has some contingency, usually that they need to sell their current home first. It can help coax the sellers into contract by offering them the ability to seek alternate buyers who don’t have a home-sale contingency or who are offering higher prices.

The clause tends to become more popular in markets that are “transitional,” where once-hot home sales are cooling but sellers haven’t yet adjusted their expectations. The tactic can be “a savvy technique” to help the sellers feel they could still get a better offer, says David Reiss, a Brooklyn Law School professor who specializes in real estate.

If the sellers do get another written offer they want to take, they must notify the original buyer. The buyer then typically has a few days to tell the seller they’ve sold their house, or that they’ve decided to waive the contingency. If not, the original contract terminates. The original buyer gets back the money they put down, and the sellers enter into contract with the new buyer.

The sellers can only keep marketing the property until the buyers satisfy or waive the contingency. So once the buyers notify the seller they’ve sold their existing home, the seller’s right to market the property ends.

Rebekah Carver, a real-estate broker with Douglas Elliman Real Estate in Brooklyn, N.Y., says Brooklyn has been a hot market for a long time, and bump clauses haven’t been common. But now she’s representing buyers on a deal where the seller had resisted signing a contract with a home-sale contingency, even though the property had been on the market for about six months. Ms. Carver offered the bump clause to try to put the seller’s mind at ease.

In general, the bump clause can “give the seller some sense of security and comfort,” says Ms. Carver. The bump clause can be proposed by either the buyer’s or seller’s side, but is often offered by the buyer’s agent as a way to get the seller to accept a contingency.

Robin Sheridan, a real-estate broker with Realogics Sotheby’s International Realty in Seattle, says that when she is representing a seller facing a home-sale contingency, Ms. Sheridan often does her own due diligence. “I want to be certain the other property is one that will sell quickly,” she says. “I vet the buyers via their lender and ensure all their ducks are in a row to navigate the two nearly consecutive transactions. Knowing the bump clause is a possibility is comforting to a seller, but most of my clients remain firmly committed to the contract in hand.”

Here are some things to consider with bump clauses.

For sellers:

• Use it as leverage. Since the house is already under contract, a seller can use the clause as a negotiating tactic with any other buyers that show interest. The seller can try to get the other buyers to outbid the current price or negotiate a contract without contingencies.

• Don’t get greedy. If the seller receives a second offer, he may be tempted to “bump” the first buyer and sell to the second. But sellers should make sure the second offer is at least as strong as the first, which means looking deeper than price and contingencies. The new buyers may have poor credit, for example, and be less likely to obtain a mortgage. “It’s a bird in the hand,” says Mr. Reiss. “If they walk away and are stuck negotiating with a second offer that’s weak, they could end up with nothing.”

Renters and Natural Disasters

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Bill Huntington

Avvo quoted me in What Do Renters Need To Know in A Natural Disaster? It opens,

From hurricanes in the East to wildfires in the West, the past few months have seen an on-going slew of natural disasters in the United States. Fires and floods don’t care whether a property is inhabited by owners or renters. However, most states have laws that  address how landlords and tenants deal with a rental property in the aftermath of a natural disaster.

Renters’ recourse in a natural disaster? Leases and local laws.

Check the lease first

The first source of authority on the obligations of landlords and tenants is found in the lease agreement, which should spell out the terms of what happens in case of a natural disaster. But not all leases clearly address this situation. According to Michael Simkin, managing partner of Simkin & Associates in Los Angeles, in cases where the lease is “burdensome or unfair,” local or state laws will govern what happens.

Landlord and tenant responsibilities vary by state

Every state has different laws regarding landlord and tenant obligations after a natural disaster strikes. Here are examples of answers to common tenant questions from some of the states recovering from recent natural disasters.

Can a lease be terminated if a natural disaster makes a rental property unusable?

California: If a rental property is destroyed in a natural disaster, the lease is automatically cancelled. The landlord must refund the rent for that rental period on a prorated basis.

“Many times, the city can come in and condemn the property and effectively force out tenants in unsafe situations. It is also the landlord’s responsibility to terminate a lease when they have knowledge that their rental property is unusable or unsafe,” notes Monrae English, a partner at Wild, Carter & Tipton in Fresno.

Florida: If the premises are “damaged or destroyed,” the tenant may terminate the rental agreement with written notice and move out immediately.

Louisiana: According to the Louisiana attorney general, if a natural disaster damages a property to the point that it is completely unusable, the lease is terminated automatically.

New York: If a rental becomes unfit for occupancy due to a natural disaster, the tenant may quit the premises and is no longer liable to pay rent. Any rent paid in advance should be returned on a prorated basis, according to David Reiss, law professor at Brooklyn Law School.

Texas: Either the tenant or the landlord can terminate the lease with written notice. Once the lease is canceled, tenants’ obligation to pay rent ceases and they’re entitled to a prorated refund of any rent paid during the time the home was not usable.

If the lease is terminated due to a natural disaster, does the renter get the security deposit back?

California: The landlord must return the security deposit within three weeks of the tenant vacating, with any deductions accounted for in writing. The landlord is not allowed to deduct disaster damage.

Louisiana: The landlord is required to return security deposits within one month, as long as the tenant fulfilled the lease obligations and left a forwarding address, according to Brent Cueria, an attorney with Cueria Law Firm, LLC in New Orleans. The landlord cannot deduct for natural disaster damage.

New York: The security deposit must be returned to the tenant, according to Reiss.

Texas: The security deposit must be refunded.

Selling Yourself When You Have A Broker

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image by Russellprisco

Realtor.com quoted me in Selling Your House Privately If You Have a Listing Agent: OK or a Big N-O? It opens,

So your home is for sale, and you’ve signed a contract with a real estate agent, but you were actually able to nab a buyer through your own efforts. Maybe it was through word of mouth or your aggressive push on Facebook (you should really apologize to your friends for posting so many pictures of your house!), but someone is writing you an offer and really wants to buy your house. Having found a buyer on your own, are you still legally obligated to pay real estate fees or commission? Here’s how to know if you’re on the hook.

Read your listing agreement

In most states, a seller and an agent draw up something called a listing agreement. The listing agreement details the rights and responsibilities of the seller and the broker, and usually outlines the circumstances when a broker is due a commission.

“If it is an open listing or an exclusive agency listing, the seller can sell the property and not have to pay the broker a commission,” says David Reiss, professor of law at Brooklyn Law School
.

Things get tricky if the listing agreement confers an exclusive right to sell. This means the real estate agent has the sole right to sell the property. All offers must go through him or her, and for any sale, you’re obligated to pay the agent the commission spelled out in the contract, according to Marc D. Markel, a board-certified Texas attorney in residential and commercial real estate law. Agents rely on these exclusive listing agreements to avoid putting in what can be months of free work without seeing a payoff. For this reason, the agreement outlines the many ways an agent earns a commission, including what happens if the seller breaches the exclusive agreement.

The loopholes

If the sellers do find a buyer on their own, despite having a contract with an agent, they may be able to negotiate a reduced commission with the agent. But the sellers should be up-front about their potential to find their own buyer when drawing up the exclusive-right-to-sell listing agreement, says Markel. Maybe they know of a friend of a friend who is looking for a house, or they plan on marketing their home on social media.

If the sellers feel as if they are doing all the work, they might also be able to modify the existing agreement and add a termination if the broker doesn’t meet certain obligations, like selling the home within a certain time frame, says Sandy Straley, a real estate agent in Layton, UT. Other obligations for the listing could include organizing open houses, creating and distributing printed materials, and even the posting of videos shot by drones, says Markel.