A guide to understanding real estate business practices
People who are eligible to list and sell real estate as a business and profession are licensed in the State of Alaska. They must pass a general knowledge test on real estate as well as a portion on real estate laws specific to Alaska.
However, none of the knowledge they are required to have deals with the intricacies of buying and selling real estate as a business practice. Two circumstances come to mind that create confusion with the consumer, as well as those who practice.
The first is how to manage a back-up offer on a property that already has a pending sale. A pending sale is a contract with an agreed upon purchase price. In most cases, particularly for pre-owned homes, it is contingent on a home inspection and agreed upon repairs, an appraisal meeting for exceeding the purchase price, a buyer’s mortgage approval and, in some instances, with a buyer’s minimum down payment, private mortgage insurance approval.
If one of these conditions is not met, the normal business practice is that the buyer who may have posted as little as $1,000 “earnest” deposit, will be entitled to his deposit back. The seller, meanwhile, has had his property off the market for as long as 60 days and has paid and accrued principal, interest, taxes and insurance, as well as having paid for the appraisal and agreed upon repairs.
With all these contingencies, taking a back-up offer would seem like a wise financial choice, but it is rarely a successful strategy. Buyers and sellers almost always act in good faith and after a sale is agreed upon, there are many entities that want to keep it together including the mortgage originator, the listing and selling licensee and their respective brokers as well as the buyer and seller.
So when it comes time for an extension of the contract or additional repairs, most sellers are willing to make some additional concessions to keep the current deal together unless it is out of their control.
Back-up offers create disappointment as well as anxiety for both potential buyers. Although licensed real estate professionals are obligated to present all offers, even back-up ones, rarely has the back-up offer been successful in my experience.
Upon occasion, anxious buyers who have difficulty making a decision as to which property to purchase, will make simultaneous offers on two different properties. Although there is no legal obligation to disclose to all parties that the buyer is making multiple offers, it is, in my opinion, an unusual business practice when it comes to buying real estate in Alaska and should be disclosed, if not in writing, at least verbally.
In fact, this disclosure might even be to the buyer’s advantage because the sellers would know they are competing for the buyer’s purchase. Although this practice may be appropriate in more urban areas in the Lower 48, it is unusual in Alaska.
A better business practice is to make one offer at a time and, in the case of a back-up offer, wait for the property to come back on the market. That way, all parties are dealing in good faith with full disclosure of the circumstances.
Connie Yoshimura is the broker/owner of Dwell Realty. Contact her at 907-646-3670 or [email protected].