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This Agreement Could Leave You With Heartburn And A Hole In Your Pocket

Terry Story, Verbal Agreement

With Terry Story, 29-year veteran Real Estate Agent with Keller Williams in Boca Raton, FL

Home Buyers Turning More Cautious

Home prices have now risen by about 50 percent above their post-recession lows in 2012.  Prices are now even higher than their pre-recession peak in July 2006.  This steady increase in home prices appears to have spooked the market.  Home buyers are now far more cautious than they were a year ago.

Terry Story has seen this caution play out.  Her most recent transaction involved a couple who had previously lost their home to a short sale and were looking to buy again.  Burnt by their previous experience, they were “very, very cautious” and “value conscious”.  They scrutinized comparable sales very closely because they did not want to overpay.

As a result, Terry had to convince the couple that the house was worth its sticker price.  She reminded them that the homeowner would not sell below market simply because of this couple’s bad experience.  Terry urged them to be reasonable and practical in their approach to buying a home in 2018.

Housing Market Moves In Phases

Homebuyer caution reminds Steve of the cyclicality inherent in the housing market.  The housing market typically moves in three phases: boom, bust, and rebirth.

Steve remembered a community in Boynton Beach, Florida, going through each of these three phases.

Phase One of the community was built in the early 2000s.  It was a hot new development and everyone wanted to buy.

Phase Two was built around the time the market started to crash.  Homeowners were subsequently behind on their HOA and condominium dues.  Many homeowners couldn’t make their mortgage payments and foreclosures were rampant.  Phase Two was a disaster.

Then came Phase Three, after prices had dropped substantially.  Buyers jumped back in and the housing market flourished again.

Housing Market Phases Akin To Volcanic Activity

Here’s a mnemonic.  Think of the three phases in housing to volcanic eruptions that formed the islands of Hawaii.

First, there’s the boom-like formation of an island as a tectonic plate moves over a “hot spot” of magma.  Then, there’s the bust phase as the ashes of the volcano leave the land mass in ruins.

Finally, there’s rebirth.  The plate has moved away from the hot spot and plants and animals thrive in lush new islands, such as Kauai.

Skip The Buddy Handshake: Lock Down Housing Terms In Writing

Switching gears, Terry urges home buyers and sellers to set all terms and conditions in writing.

She has seen multiple cases where buyers and sellers “like” each other and strike side deals.  Such side deals are not formalized in writing.  Then, after the sale, one party defaults on verbal promises, leaving the other party terribly upset.

Hence, if you strike-up a verbal agreement with a seller or buyer, write it up.  The agreement doesn’t have to be fancy or elaborate.  It simply needs to be clearly stated, in writing, to be enforced by a court of law.

Steve recommends that buyers and sellers get actively involved in thinking about the terms and conditions in the contract, from the very beginning.

Shying Away From Contract Obligations Can Really Hurt You

Terry’s real-life story has to do with deposit money.

Housing contracts obligate a buyer to put down earnest money in a timely manner.  When you deposit money in escrow, you cannot turn around and put a stop payment on it.  But that’s exactly what a buyer did on one of Terry’s deals.

The gentleman decided to put a stop payment on his deposit because he did not want to go through with the deal.  By doing so, he breached the contract.  This gave the seller the right to go after the buyer for the full deposit amount.

Had he not stopped the payment, he could have legally backed away from the purchase without losing his deposit.

Here’s the bottom line.  Make sure everything you talk about is added to the written contract.  Take your agent into your confidence and speak with him/her before doing anything out of the ordinary.  Otherwise, you could end up holding the bag for your own foolish actions.

Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital.  Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.  Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances.  The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.

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Steve Pomeranz: It’s time for a Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 29-year veteran with Keller Williams, located in Boca Raton, Florida, and she is in the studio once again with me.

Terry Story: Hey.

Steve Pomeranz: Hey, Terry. So the word is, the articles state that people now who are buying homes after the recession…

Terry Story: Yep.

Steve Pomeranz: …they’ve got a different attitude. They’re not looking at homes the same way they did back then. What’s going on?

Terry Story: That’s right. The recovery rolled on for, what, eight years?

Steve Pomeranz: Mm-hm.

Terry Story: And builders and everyone else is saying that there’s a new breed of buyers emerging.

Steve Pomeranz: Okay.

Terry Story: And basically, what they’re saying is they are more cautious. And I can tell you on a personal level, dealing with buyers and sellers, they are.

I just had this last transaction, it was a couple buying a home. They had lost their house to a short sale, and they were very, very cautious. They were very concerned, looking at the comparable sales very closely. Didn’t want to overpay. And we had to really show them that the house had the value.

Steve Pomeranz: Yeah.

Terry Story: I feel bad for their situation, and it is good to always be conservative on this stuff and know. But it’s also important to realize that the market’s not going to sell the home for below market because of the situation that you had experienced. So you have to be reasonable and practical about it. But they are value conscious, more so than ever before.

Steve Pomeranz: Okay, well, the market doesn’t really care about you.

Terry Story: That’s right.

Steve Pomeranz: Okay, that’s number one, right? So you bought your house high, you sell it low, market doesn’t care.

Terry Story: That’s right.

Steve Pomeranz: It’s you that has to muck-

Terry Story: Deal with it.

Steve Pomeranz: Deal with it, right? Yeah, so that brings up a point that I see in my own business and that is, certain careers are very cyclical. The nature of their earnings is cyclical and some are very steady. So for example, largely speaking, if you’re a physician, I mean, your income has got other pressures, especially with healthcare today. But really, recessions and things like that are not going to hurt it that much, you’re going to have a pretty stable income.

Terry Story: Everybody needs a doctor.

Steve Pomeranz: That’s exactly right. And so your decision to buy a house can be different than the person, let’s say, that’s a real estate broker or an investment guy or someone who is in a cyclical business and in sales particularly where you can have a fantastic year.

Terry Story: That’s right.

Steve Pomeranz: And then have a very terrible year. And how do you deal with that when your earnings are cyclical and you see you’ve got the money now?

Terry Story: Right.

Steve Pomeranz: You’re flush. And you see that gorgeous house [LAUGH] –

Terry Story: And you’re living high and everybody’s buying houses.

Steve Pomeranz: And your friends and, yeah, everybody’s forming a family.

Terry Story: Don’t keep up with the Joneses.

Steve Pomeranz: Yeah, it’s hard.

Terry Story: Don’t keep up with the Joneses.

Steve Pomeranz: It’s hard, wow.

Terry Story: [LAUGH]

Steve Pomeranz: [LAUGH] All right, so I guess we’ve all been chastened, let’s put it that way, since 2006. I have a really quick story about this. There is a community in Boynton Beach. I forget the name, but it was phase one, phase two, and phase three.

Terry Story: Right.

Steve Pomeranz: Now, phase one was built in the early 2000s and phase two was built right around 2005.

Terry Story: Okay.

Steve Pomeranz: And then, phase three came after. So I don’t know if you know about…and this is really off…but I don’t know if you know about the way volcanoes are formed. So there’s a hot spot in the earth, and the land is moving over the hot spot, and when it gets over the hot spot, a volcano is formed, right?

Terry Story: Okay, yep.

Steve Pomeranz: Okay, and then you’ve got this terrible raw land and all volcanic ash and all of that, but it keeps moving after many, many years. And then it starts to grow, flush and beautiful. And if you think of Hawaii, it’s kind of like that. If you’re out in the out islands like Kawai and all that, it’s just gorgeous, right?

Terry Story: Yep.

Steve Pomeranz: But as you move closer to the hotspot it gets, so that’s how I see these three phases. So phase one was-

Terry Story: Hot, hot, hot.

Steve Pomeranz: Went out of the hot spot, but it passed the hot spot, and then phase two happened right when the crash happened.

Terry Story: Yep.

Steve Pomeranz: And people weren’t paying their condominium dues, their HOA.

Terry Story: HOA fees.

Steve Pomeranz: Right, they were foreclosing, so phase one was beautiful. I mean, it was a healthy environment. Phase two was a disaster.

Terry Story: Yes.

Steve Pomeranz: And phase three came much later when prices had dropped-

Terry Story: It’s flourishing.

Steve Pomeranz: Doing well, [LAUGH] right.

Terry Story: [LAUGH]

Steve Pomeranz: What was interesting, it was kind of like a scientific experiment because every phase was exactly the same. So there was no variation on the way the house, the apartments looked.

Terry Story: Yep.

Steve Pomeranz: Everyone was exactly the same.

Terry Story: It’s all in the timing.

Steve Pomeranz: It’s like the Valencias down here.

Terry Story: Right, right.

Steve Pomeranz: There’s like a zillion of them, right, they’re all the same. Long story short, the only variable here was when the places were purchased. And I think that kind of gets down to this idea that we were all-

Terry Story: Timing.

Steve Pomeranz: Basically, chastened by that experience.

Terry Story: Yep, yep.

Steve Pomeranz: Yeah, wow, okay. So let’s move on, I don’t know where we’re going after this. Yeah, very quickly, you being in the business of signing and executing contracts all the time, I think there’s a lot of, or maybe a lot of, communication between a buyer and seller.

Terry Story: Right.

Steve Pomeranz: I know you try to keep us apart.

Terry Story: [LAUGH]

Steve Pomeranz: [LAUGH] But where things are said-

Terry Story: Little sidebar deals behind our backs.

Steve Pomeranz: [LAUGH] That and stuff that’s just a handshake.

Terry Story: Right.

Steve Pomeranz: Agreements that everybody is happy about and their saying okay, I agree.

Terry Story: I’m going to include this and this in the house and then it’s not there.

Steve Pomeranz: Yeah, I know. So you know where I’m going with this, it’s about the contract, right?

Terry Story: Right.

Steve Pomeranz: Take us there.

Terry Story: Basically, the bottom line is if you have an agreement, don’t just accept it on a handshake, follow it up with something in writing.

It doesn’t have to be anything fancy or elaborate, at least you have now a written commitment. Verbal, when it deals with Florida real estate anyway, it has to be in writing for it to be enforced.

Steve Pomeranz: Yeah, period.

Terry Story: That’s just it.

Steve Pomeranz: Right, and I think one of the other recommendations is, for the buyer and seller, is to think around the contract. Get involved with the contract early on, and then start your discussions with regards to the contract. Make it part of the process.

Terry Story: Right, absolutely, tie it all into the contract.

Steve Pomeranz: All right, so I have a question for you. Well, hold on a second. Do you have any contract stories?

Terry Story: I always have a story, Steve. I’ll give you my most recent one.

Steve Pomeranz: Tell us a story, please.

Terry Story: Okay, so it has to do with deposit money.

It’s important to understand that you’re obligated to, according to the contract, put up your earnest money in a timely manner. And when you put the money in deposit for escrow, you cannot turn around and decide to put a stop payment on it. I had a case where the gentleman decided to put a stop payment on it because he wasn’t going to go through with the deal.

But by doing so—and he potentially would have gotten all his money back—but by doing so, he breached the contract. By breaching the contract, he now opened up this big window where the seller had the rights to go after him for the full deposit amount.

Steve Pomeranz: I guess if he had been upfront and said look, I have to change my mind. I have personal reasons, whatever it is.

Terry Story: And there were loopholes that would have allowed him to get out in this particular case.

Steve Pomeranz: But just don’t stop-

Terry Story: Just don’t.

Steve Pomeranz: That’s bad form.

Terry Story: Exactly, and no.

Steve Pomeranz: Okay, good.

Terry Story: Don’t do that.

Steve Pomeranz: My guest, as always, is Terry Story, a 29-year veteran with Keller Williams, located in Boca Raton, Florida. And she can be found at terrystory.com. Thanks, Terry.

Terry Story: Thanks for having me, Steve.