The Financing Contingency

Posted on October 26, 2005 by Craig Blackmon

(This is a guest post by Craig Blackmon, an attorney in Seattle whose practice focuses on residential real estate — see www.lawofficeofcraigblackmon for more information. Please note that this post is not legal advice. You should consult an attorney for specific legal counsel.)

The financing contingency is one of the most common contingencies in a real estate purchase and sale agreement. In order to understand it, one must first understand contingencies in general. This past summer, the Washington Court of Appeals examined a financing contingency in Salvo v. Thatcher, 128 Wn. App. 579 (2005). The Court discussed the rights and obligations imposed by such a contingency, and the principles applied by the Court are summarized below.

A contingency is a condition that must be satisfied before the parties have a legal duty to perform under the contract. The parties must make a good faith effort to satisfy the condition. When all contingencies are satisfied (or waived), the contract becomes legally binding and each party must perform its obligations (i.e. the buyer must buy and the seller must sell) or face liability for not doing so. If a contingency is neither satisfied nor waived prior to the stated closing date, the contract expires and the parties are relieved of their contractual duties.

A financing contingency makes the contract contingent upon the buyer obtaining the financing necessary for the purchase. Generally, the buyer must apply for financing within a certain number of days of the contract’s creation (mutual acceptance). If the buyer is unable to obtain the financing despite a good faith effort to do so on or prior to the closing date, then the contract expires and the parties are relieved of their contractual obligations. Because the buyer had a valid reason for being unable to perform under the contract (i.e. purchase the property), the earnest money should be returned to the buyer.

In Salvo v. Thatcher, a nasty dispute arose between the buyer and the sellers when the buyer was unable to obtain financing in time to close as required by the contract. The sellers argued that the buyer failed to give notice of his inability to close; because he did not give notice, he was in default of the contract and thus the sellers were entitled to the earnest money. The Court ruled that the language concerning notice did not supersede the general terms of the contingency, and moreover the notice was optional per the terms of the contract. Accordingly, because buyer could not get financing after making a good faith effort to do so, the contract expired and the buyer was entitled to the earnest money, regardless of his failure to give notice.

Of note, the contractual language at issue in Salvo differs from the language generally used in purchase and sale agreements today. Under the current language, and unlike the language in Salvo, the buyer is specifically required to give notice of the status of the loan application. It is an open question as to whether this different language would lead to a different result under similar circumstances. Regardless, buyers (and sellers too) should fulfill their contractual obligations so that they are clearly not in default. If a buyer unequivocally satisfies its contractual obligations but a contingency remains unsatisfied, then the buyer is in the best position possible to demand a full return of the earnest money.

GoogleBase Heads into Real Estate?

Posted on October 26, 2005 by Dustin Luther

The Search Engine Roundtable brings up the possibility that Google will slip into the real estate market as part of a much large (all-inclusive) database (or GoogleBase). This has a ton of potential and should Google get serious about listing real estate, this should be a major concern to all the people who are creating real estate applications (Zillow, Trulia, Redfin, etc):

There has been some talk this morning onto what will actually be included into Google Base, there are some nice screenshots that have come live this morning. Giving us a little glimpse of how Google thinks the world’s information should be organized. Here is a shot where you can post your items to Google Base and another shot where you need enter in some information about a house.

To get an idea of where they might go, check out this screenshot of a house listing. It is shockingly simple… but then again, the simple solutions are often the best!

Update 1: I was able to get into GoogleBase today and play around a little. I even found the “housing” page that is shown in the screenshot from above. However, when I tried to save a test entry, the system kicked me out. From my early preview, it appears that they’re building a “Craigslist on Steroids!”

Update 2: The NYTimes followed up on the idea of Google getting into real estate: “Among the many projects being developed and debated inside Google is a real estate service, according to a person who has attended meetings on the proposal. The concept, the person said, would be to improve the capabilities of its satellite imaging, maps and local search and combine them with property listings.”

“The service, this person said, could make house hunting far more efficient, requiring potential buyers to visit fewer real estate agents and houses. If successful, it would be another magnet for the text ads that appear next to search results, the source of most of Google’s revenue.”

Update 3: The property grunt had an interesting take on Google Base.

Inbox: Where to Live Based on the Quality of Seattle Public Schools?

Posted on October 20, 2005 by Anna

I’ve been having a dialog with one of my readers who is looking forward to moving to Seattle. His last email summarized some of the research he has done on Seattle schools, and I thought the entire email is so good that it deserved a wider audience:

Dear Anna —

I’ve got another issue you might want to explore on your blog, and get readers’ feedback. Do people looking to buy real estate in Seattle base their choice of neighborhoods on the quality of schools? From my understanding of the Seattle public school system, it seems that one does not need to consider high schools among ones neighborhood selection criteria, since at least in term’s of today’s system, there’s no admission advantage (other than just being close) that accrues to living in the “reference area” of ones preferred high school. However, there does appear to be an advantage to living in the reference area of ones preferred elementary and junior high schools. And if budget cuts ultimately mean cutbacks in school choice (though that has been averted for the time being), then it’s likely that it will be even more important. So, what this means is that if school quality is important to you, you should look at the neighborhood elementary and junior high schools.

However, if one looks at the Seattle city schools in comparison to suburban schools in terms of grade scores (as tabulated by the Seattle Times School Guide), quite a few elementary schools (e.g., Lowell, View Ridge, Wedgwood, Hay, Lawton, North Beach, Whittier, etc.) compete with the best suburban schools (Mercer Island, Bainbridge Island, etc.). However, at the junior high school level, all but a few junior high schools (Eckstein, Tops, Washington) fall out of step with the best suburban schools. And at the high school level, only the Center School ranks with schools on Bainbridge, Mercer Island, Bellevue, Issaquah and the Northshore. The obvious conclusion, then, is that if you seek top notch schooling in the upper grades, your choice comes down to having your child compete for a place at a few select Seattle city public junior highs or high schools, or else looking at private schools, or moving to the suburbs.

What do you think of this analysis? What other school related-factors are there to consider?

I hope you don’t see this as too self-serving. It strikes me as it is a fundamental part of buying real estate, but is rarely fleshed out in public, probably because of the hot-button racial issues involved.

(I’ve left the writer of this email anonymous at his request)

When he asks if any other factors should be considered, I think of some of the specialty programs that different schools offer. For example, all of the 5th grade students at Greenwood Elementary School are taught how to fly airplanes (Cessna 172’s). I imagine that some parents would be willing to give up a few test score points to know that their child was in a more stimulating environment.

What other specialty programs are there that might be of interest to parents moving to Seattle?

What other school-related factors should he consider in looking for a home in Seattle?

I would definitely like to open up his questions to other readers, so please feel free to leave comments below.

The Rebirth of Redfin?

Posted on October 20, 2005 by Dustin Luther

[photopress:tyler_scott_01.jpg,thumb,alignright]In response to my recent slew of posts on real estate search engines, a reader (Amy Wu) left a comment asking if I’d ever tried Redfin. I’ve definitely tried Redfin and at one point I was a huge fan of their site. As a matter of fact, way back in March (before the days of plentiful google map-hacks), I mentioned how great it is to be able to get a birds-eye view of properties using Redfin. By the way, that was only my 3rd post for Rain City Guide (RCG)!

However, around June, RCG had a falling out with Redfin when they changed their business model to directly compete with Real Estate agents. One of the more interesting outcomes of my June post is that a former employee of Redfin wrote a long comment detailing some of his negative experiences while working at Redfin. After posting the comment, he asked that I delete it after David Ecker (founder and CEO of Redfin) wrote to him threatening a lawsuit.

However, I’m always willing to give people a second chance, so based on the Amy’s prompt, I decided to revisit Redfin. I was pleasantly surprised to find that they no longer mention the service I objected to. Go Redfin! I’m not sure if my posting had anything to do with the elimination of that poorly thought-out service, but either way, I’m pleased to see that they no longer advertise that service on their site.

So, in honor of my complete re-look at Redfin, I thought I’d compare them in the same method that I’ve been comparing sites like Trulia and Home Pages?

The Great:

Neighborhood Focus: Their interface makes it extremely easy to focus on local neighborhoods
Agent Integration: Their business model includes an easy way for agents to sign up and take part in their success!

The Good:

Stability: Their flash maps are much more stable than Home Pages (especially on a Mac)
Real Estate Data: Up-to-date date of homes-for-sale and sold-home
Personalized Mapping: Their maps are quick and don’t rely on another company’s service!
They’re Local: They serve (and only serve) the Seattle area (King County to be specific)

The bad:

They’re Local: They serve (and only serve) the Seattle area. I know from my stats that many of my readers are from other parts of the country/world, and Redfin simply will not help you at all!
Porting to other areas: I’ve heard for quite a while that Redfin was thinking of expanding to other areas, but their web-backend is apparently too complex to easily add to new areas. Having worked extensively with spatial data (GIS) for many years, I’m would not be surprised to hear that they are having problems adding new cities, but it is definitely disappointing. Along those lines, a service like Home Pages that relies on more generic neighborhood data (like school district data available from the Census District) has a much easier time going national!

The Ugly:

Arrogance:

Trulia

LTD

Regardless of their business politics, Redfin offers some pretty darn good real estate mapping features. If you are looking for a home in King County (Seattle, Redmond, Bellevue, etc.), I would definitely recommend checking them out! But when looking toward the future of real estate search, I just don’t see much excitement happening at Redfin, so unless there is a major change in their direction, I doubt they will still seem like an interesting real estate search one year from now (let alone 5 years!).

gHomes?

Posted on October 20, 2005 by Dustin Luther

The Mercury News reports that both Google and Yahoo are in talks with CoStar Group, commercial real estate’s largest firm. With Google’s reputation for building clean and fast web applications and their vast source of neighborhood data from Google Local, they definitely have the potential to build a killer application.

Along these lines, there have been some interesting discussions around the web lately with regards to developing sites around Google Maps. Greg Linden reminded me of a conversation I had a long time ago with Paul Rademacher (of HousingMaps). Back in June, Paul mentioned that he was reluctant to build a real estate search engine using MLS data because (1) all of the data was owned by other people and (2) the mash-ups are so easy to replicate.

I thought that Search Engine Watch had an interesting addition to this conversation when they point out that the real winner of the API/mashup model is often the company that is opening their service up. The mash-ups are a great breading ground for interesting ideas… but that when push comes to shove, the mash-ups are really just providing a way for companies like Google to let others figure out what mapping add-on technologies are worth pursuing:

It also demonstrates what I told a journalist recently about APIs not perhaps being as altruistic as they seem. Give the world an API to your service, and it’s a nice way to let everyone develop new ideas that you might later decide to do yourself, if they seem successful. It’s like Google’s 20 percent time on steroids, because non-Google developers still end up doing work for you.

As someone very interested in the future of real estate search, I’d definitely welcome someone like Google in the mix because I think they could add some some desperately needed innovation to the real estate industry.

Better Late than Never

Posted on October 19, 2005 by Dustin Luther

John Cook’s Venture Blog pointed out today that Zillow got a new look and is now looking for beta users… Much to Zillow’s credit, they’ve created an aura of excitement despite the fact that no one knows what their product will look like, or when it will be available.

This got me thinking that it is clearly time for some updates on real estate search. The past two weeks, I’ve been too busy at work (WAY TOO BUSY) to write any posts, so I was glad that Anna took up some slack and wrote about Home Pages. However, I’ve had this nagging need to write a little more about the site, and I’ve finally found some time. Here are some of my notes from my test-drive of Home Pages:

The great:

Neighborhood information: It is really great that they’ve integrated so many different layers into their map. Just like Home Values, in the very near future all home search sites will need to include information like schools, parks, etc.
Sold Home Info: It’s great to have this information integrated into the search site

The good:

Personalized UI/mapping: I really like that they’ve developed their own user interface instead of relying on one of the big three providers (Google, Yahoo, and Microsoft). That should give them lots of flexibility into the future, although it also means they’ve taken on a whole host of update issues instead of passing the buck on that one. I’ll be interested to hear from someone at Home Values about their experience with this hosting their own mapping.

The bad:

Small map: Why so small? Blow up the size of the map at least 2X
Mac Issues: Elements of the screen don’t show up on my Mac. I lose the entire map at times… (by the way, I don’t notices this problem on my PC at work)

The ugly:

Contact Information: I hate websites that make you give personal information in order to get the full features. As a real estate agent, Anna already gets 2 to 3 junk emails a day from House Values (the company behind Home Pages), so I’d hate to think of the consequences of a potential home buyer giving them a phone number. Be VERY weary of giving them an email unless you want lots of emails that border on spam.

Home Pages is the only real estate search site that I’ve seen that even remotely compares to Trulia… and it has one MAJOR advantage over Trulia in that it is using updated Multiple Listing Service (MLS) data instead of screen scraping real estate sites. This is a huge advantage in that I’ve been told via email, IM, comments, etc that the data on Trulia is incomplete and outdated.

In many ways, my heart is really with the Trulia team because I think they are offering a superior search. I really like the clean UI, the RSS feeds, the home statistics, etc. but if they don’t have the most up-to-date homes available on the market, then I’d be hard-pressed to recommend their site to anyone looking to buy a home. For this reason, I’d have to say that Home Pages currently leads the market at the best publicly-available home search. If you haven’t checked their site out already, then use this post as inspiration to get an idea of where the future of real estate search is heading!

Interest Rates: When is the Best Time to Lock?

Posted on October 18, 2005 by DRMiller

I always advise my clients to lock in their interest rate at the earliest opportunity. Gambling with a client’s interest rate is never advisable. In my business, I have a standardized system in place that we adhere to for all of our clientele. A mortgage loan cannot be closed without locking in a rate, and there are three
main elements to take into consideration:

Interest Rate
Points
Length of the lock

Locking in on a rate does not obligate the client to commit to the loan until the loan is actually closed. The lock simply eliminates any risk of the borrower being exposed to market volatility. It provides the security of having time to complete the mortgage and Real Estate transactions with some sense of order. The lender must disburse funds to complete the transaction within the rate−lock period, or else the original commitment to provide a loan at a certain interest rate will expire.

When a lender permits an extended lock−in period, the borrower will usually see either a higher interest rate or more points associated with the loan. The lender does this to minimize their own exposure to market volatility; hence the borrower pays for the lender to take on this risk.

For example, a 30−day rate lock commitment may cost the consumer one−half point, while a 60−day rate lock commitment could cost 1 full point. If the borrower needed an extended lock period, but did not want to pay points, the lender could make up the difference in the interest rate. In this case, typically, a 60−day lock would have a higher interest rate than a 30−day lock.

In my business, our standard procedure is to lock in a rate as quickly as possible once we have received the loan application. My team and I let our clients know that while interest rates fluctuate daily, most lenders do not want to lose any business. We know that in many cases, if there is a significant rally in the market that causes interest rates to drop .25% or more, we can ask the lender to renegotiate the rate. or understand that we will take the loan to another lender.

Often the lender allows for a renegotiation of the rate to avoid losing the loan to another lender. If we allow our clients to sit on the fence and not lock in a rate quickly, we would leave them exposed to market volatility. Then, if rates do increase, the borrower may be unable to qualify for the loan they want, which is a situation we try to avoid at all costs.

By knowing our clients’ needs and working intimately with them to make the right decisions, my team and I are proud to say that we have many clients who are raving fans.

Seattle’s hot housing market

Posted on October 14, 2005 by Anna

According to the latest statistics from the Seattle Times, the housing market is still hot. “Homes sold last month in King County were on the market an average 37 days, compared with 52 days for homes sold the previous September. Properties in neighboring counties also were snapped up faster than a year ago.” The article notes that while home prices in Boston and Washington DC have started to decline, our market stays strong.

Interestingly, the home market has remained strong despite the recent increases in interest rates. Frank Nothaft, chief economist at Freddie Mac is quoted in the Seattle PI as saying “The most likely pattern is for mortgage rates to gradually rise over time. It is likely that they’ll hover at 6 percent or just a bit over.” He added that “will translate into somewhat weaker demand for housing, lower home sales volume and lower house price growth.”

Further interest rate increases by the Federal Reserve will likely increase rates even higher:

At the same time, a few consumers prospecting for properties – especially those prequalified by lenders – may be spurred into action by the rising interest rates.

“People may start buying before it (the mortgage rate) goes up any more,” Binczewksi said. “They would make offers because they have rate locks. Now, with rates increasing, they won’t want to lose rate locks.”Further interest rate increases by the Federal Reserve probably will push ARM rates even higher, analysts said.

With the rapid growth in home prices, I’ve seen many of my clients opting for smaller homes and/or condos. The Time article reflects this pattern by showing the the total number of available condos is way down (1,347, compared with 2,121 a year earlier) while the median price is up ($229,950, up from $205,000).

home search progress…

Posted on October 11, 2005 by Anna

House Values launched a new site today that combined aerial photography with real-estate listings and extensive neighborhood information. The Seattle Times notes that Home Pages “has information covering 92 percent of the nation’s metro areas.”

HomePages combines aerial photography with neighborhood demographics. When you click on an icon, neighborhood data such as local school information is given such as the student-teacher ratio, average class size and even the name of the principal. Of course you can view all the homes for sale , but I really like that it displays the homes in relation to neighborhood amenities — libraries, restaurants, theaters, churches, banks, police and fire stations among them. If you are interested in seeing where the future of real estate search is heading, this site is definitely worth checking out.

By the way, don’t overlook the value in their House Invaders’ game… 🙂

Ballard History.

Posted on October 10, 2005 by Anna

[photopress:shilshole_boats.jpg,thumb,alignright]The City of Seattle’s website has an interesting tour of Ballard history that has some fun gems of information (including some wonderful historic photos).

“The first claim in the future city and neighborhood of Ballard was filed in 1852, the same year settlers arrived in Seattle itself. Development proceeded slowly until railroad entrepreneurs Thomas Burke and Daniel Gilman (remembered now with the Burke-Gilman Trail) assembled a large tract in 1888 for the construction of a new community.
Meanwhile, a ship’s captain named William Rankin Ballard lost a bet with a business partner and found himself the owner of 160 acres of seemingly worthless logged-off land adjacent to the planned Gilman Park development. Burke and Gilman hired him to manage their project, and appreciative residents named their new city after Ballard when they incorporated in 1890.”

“The large wave of Scandinavian emigrants were coming to this are and in 1889, when Seattle all but burned down, Ballard’s sawmills supplied materials to rebuild the city. For years, Ballard was the No. 1 producer of wood shingles in the world, earning it the nickname “Shingle Town USA.”

“Back than Ballard was a rough-and-tumble town. Factory whistles signaled the start and end of the day. Ballard was also a fishing town, and on Salmon Bay – the birthplace of Ballard – Alaska fishing trawlers remain a dominant presence. Men heading home would stop along Market Street to buy supper or hoist a beer in one of Ballard’s many saloons.”

“Now we define Ballard by boundaries on North 110th NW st. , South and West Salmon and Shilshol Bays and the East by 3rd Ave NW and Phinney Ridge. Ballard includes the neighborhoods of Loyal Heights, Crown Hill, Blue Ridge, Bitter Lake and Broadview. While the others are primarily residential, Broadview, roughly the area between North 105th Street and 145th Street from Puget Sound east to Aurora Avenue, is a community that has seen big changes in housing and urbanization. “