Advice Please!!!

[2manyhomes]

I'm in a sticky situation at the moment and was wondering if anyone here can help shed some light or options on it!

We purchased a home 3 weeks before the property market started getting a slamming in the media, we had to purchase unconditional to secure our offering price etc, i know dumb move but what is done is done! So we gave ourselves a long settlement thinking we'd have plenty of time to sell. Our house was valued well and is i a desirable suburb the first few weeks of marketing where pulling good interest and it should have been simple but a few weeks out from settlement and we still haven't found a buyer. We've looked at options for renting one of the properties etc but the repayments would be more than 4 times what we would get in rent. Bridging finance would be the same deal.

Obviously we want to move on but if this all goes pear shaped what happens apart from the obvious loss of deposit!

[xris]

Hello 2many,

Correct me if I'm wrong here but I assume...

You have gone unconditional on a new home for yourself but to pay for this you need to sell your current home. Settlement is looming and you have not yet sold. You paid a deposit. Correct?

You have probably already thought of this, but all I can suggest is this.

1/ Your current home is poorly marketed or probably you are asking too much. What feedback have you had so far? What advice from the agent, assuming you have one. In this sort of situation you need to hit the market hard and be spot on with price. You should have been made aware of this by your agent.

2/ Bridging finance is often the way to go.

3/ There are schemes around allowing you to borrow the full amount on credit for about 90-120 days, just like using a credit card. This will give you an extra three months interest free to sell your current home. Your agent should be advising you about this.

3/ You pull out and lose your deposit.

4/ You settle and rent out the new home, not your current one, which would make it unsaleable.

5/ You approach the vendor and ask them to leave money in at a low interest rate, ie using them as your bank. They may need the sale but not necessarily all the money straightaway.

6/ You ask the vendor nicely for an extention. Too obvious perhaps?

xris

[Green Fish]

7/ Ask your lawyer to attempt to negotiate a settlement with the vendor (and the land agent), so as to release you from the purchase. You're obviously going to have to pay something. Even if that ends up being the whole of the deposit, you still need to ensure that the vendor has no futher claim against you.

[Glenn]

Never deal with that agent again and ask your lawyer why he did not warn you not to get into such a possition.
Obviously it sounds as if you stripped off and dived in without looking.
Now you will lose your shirt and a few other garments.
I saw a few of these deals when I was selling real estate.
Ethical agents would not encourage buyers to leap in like this.
When sales numbers are headed downward one can understand why some "mates" in the industry would do it.
Tell everyone which real estate principle/ owner allowed their sales person to sign someone up like this.
Do it through this forum by naming the firm.
Then we can all avoid that firm or other members of the same franchise also

[xris]

Never deal with that agent again and ask your lawyer why he did not warn you not to get into such a possition.
Obviously it sounds as if you stripped off and dived in without looking.
Now you will lose your shirt and a few other garments.
I saw a few of these deals when I was selling real estate.
Ethical agents would not encourage buyers to leap in like this.
When sales numbers are headed downward one can understand why some "mates" in the industry would do it.
Tell everyone which real estate principle/ owner allowed their sales person to sign someone up like this.
Do it through this forum by naming the firm.
Then we can all avoid that firm or other members of the same franchise also

Well I seem to have a challenger for the position of site blunt and grump.

We still do not know if an agent was involved or whether this was a private sale.

Or if the vendor was advised correctly and jumped in anyway.

Or this or that...

More information needeed please.

xris

[2manyhomes]

thanks for the feedback guys.

In answer to your questions yes we have gone unconditional and yes deposit has been paid but its only about 3.5% of the asking price, obviously the agents cut would have taken a large chunk of that.

Original feedback was good and where we imagined the house would be valued. But after the media slamming of the market we just found ourselves with bargain hunters and understandable to i'd do the same if i was cashed up. So we adjusted our thinking and our price well over 10% but we still just seem to be attracting the bargain hunter.

And yes we where pressured into the deal, the original conditions where squashed and we ended up in a catch 22 situation of lose the house or except the offer. Hindsight would have been good as always. In my opinion the agent was extremely unprofessional around the whole deal. And like many other agents we talked the agent told us there where buyers lining up to purchase a property like ours, although we didn't list with this agent and until this is all over i'd rather not name names.

and Xris the house is well priced and has been marketed well and has cost us a small fortune - signs, ads, flyers, web sites, photography you name it we've done it.

Anyway once again thanks for the advice, it sounds like i might need to have a sit down with my lawyer.

[kalovatt]

Original feedback was good and where we imagined the house would be valued. But after the media slamming of the market we just found ourselves with bargain hunters and understandable to i'd do the same if i was cashed up. So we adjusted our thinking and our price well over 10% but we still just seem to be attracting the bargain hunter.

Unfortunately this situation is now rampant in many areas. Exactly the same thing happened to me. Had my IP signed up to sell just as the media doom and gloom arrived. The buyer bailed out under the DD clause, have since had 2 more contracts where the same thing happened, also after dropping the price. Luckily I don't have to sell, so I pulled it from the market.

I would suggest you rent it out and ride the storm out, but if the deposit is not too large then maybe you could cut your losses.

[xris]

Some clarification seems needed here.

Kalovatt first. Some would say that if you have gone round accepting offers with due diligence clauses on them then the would be buyers are not the ones at fault.

2many,

You need to distinguish between the two agents - the one selling the new home who is the vendor's agent and the one now selling your home who is yours.

The first agent may have done nothing wrong if you were correctly advised. You should have had a subject to sale clause put in. But you may well have chosen to forego that clause in the face of good advice. Plenty of people do this all the time because they have worked out what to do if they cannot quickly sell their own home. At do not forget that the first agent is acting exclusively for the vendor, not you. He/she has an obligation to give you reasonably professional advice, as just given, but at the end of the day you signed the contract. It is impossible here to know exactly what was said and by whom, etc.

With your current property, if it is well marketed and it still hasn't sold then the price may be too high.

One final point. I strongly urge you not to name any agents here. There are plenty of bad ones outthere but in my experience there are manymore buyers and sellers who aact unethically and unprofessionally and or simply foolishly.

xris

[kalovatt]

Some clarification seems needed here.

Kalovatt first. Some would say that if you have gone round accepting offers with due diligence clauses on them then the would be buyers are not the ones at fault.

Agreed. I don't blame the potential buyers at all. I am just making the point that this is what is currently widespread in the market. I had several previous offers when, during the negotiation process, refused to remove their DD clauses. The only ones without it were the aforementioned very low investor offers.

Cheers Kelvin

[Green Fish]

I agree with xris about due diligence clauses. The clauses used by real estate agents are not, in fact, due diligence clauses. They are free options.

The justification advanced by purchasers for a DD clause is that they will have to spend money engaging various experts, and that they do not want to spend that money if they might miss out on the property. It that is the argument, then that is what should be recorded in the agreement. Instead, they get a free one month option. For example, if they want to check whether the house leaks, they can - but if the house doesn't leak, then they have to settle.

[Xav]

Anyway once again thanks for the advice, it sounds like i might need to have a sit down with my lawyer.

You need to do this immediately, if you haven't already.

In answer to your first question:

Obviously we want to move on but if this all goes pear shaped what happens apart from the obvious loss of deposit!

You have contracted to purchase the property. If you do not go through it, you will:

a) Lose your deposit. The deposit is to show your goodwill to the vendor, if you break the contract, it is gone.

b) Have to reimburse the vendor for any loss on resale (ie. decrease in purchase price).

c) Have to reimburse the vendor for their costs. This includes legal fees and Real Estate agent's commission for the collapsed sale (which is still payable because an unconditional agreement was procured).

d) Pay interest on all of the above.

If you pull out the loss will therefore be far more than just the deposit as Xris suggests above. You should note that the deposit does NOT even go towards paying b), c) and d), they are in addition to the loss of the deposit.

A recent example of these sort of damages is Mana v Fleming, which has a corresponding PT thread here.

At this point it will probably be most economic for you to reduce the price on your property to whatever level is necessary to sell it (as long as it is still enough to allow you to complete the purchase).

I agree with xris about due diligence clauses. The clauses used by real estate agents are not, in fact, due diligence clauses. They are free options.

Getting a little off topic, but a due diligence clause must not be worded so widely as to allow the purchaser to freely escape for any reason. If it is, the purchaser is not bound by the agreement and consequently there is no contract. If that happens, then technically neither party is obligated to go through with it.

[xris]

You need to do this immediately, if you haven't already.

In answer to your first question:



You have contracted to purchase the property. If you do not go through it, you will:

a) Lose your deposit. The deposit is to show your goodwill to the vendor, if you break the contract, it is gone.

b) Have to reimburse the vendor for any loss on resale (ie. decrease in purchase price).

c) Have to reimburse the vendor for their costs. This includes legal fees and Real Estate agent's commission for the collapsed sale (which is still payable because an unconditional agreement was procured).

d) Pay interest on all of the above.

If you pull out the loss will therefore be far more than just the deposit as Xris suggests above. You should note that the deposit does NOT even go towards paying b), c) and d), they are in addition to the loss of the deposit.

A recent example of these sort of damages is Mana v Fleming, which has a corresponding PT thread here.

At this point it will probably be most economic for you to reduce the price on your property to whatever level is necessary to sell it (as long as it is still enough to allow you to complete the purchase).



Getting a little off topic, but a due diligence clause must not be worded so widely as to allow the purchaser to freely escape for any reason. If it is, the purchaser is not bound by the agreement and consequently there is no contract. If that happens, then technically neither party is obligated to go through with it.

A good post and yes I was to lax in saying that 2many would (just) lose her/his deposit. If it were me, and if I suffered any form of loss, I would take legal action against the buyer. I would also consider taking action against my REA for only obtaining a 3.5% deposit.

Get your lawyer to see if the vendor will agree to cancel or modify the contract, but failing that you should definitely settle.

Have you considered a short call auction? Sometimes not the best because it may imply a certain desperation (which is true of course) but it may be an option worth exploring.

My prefered choice would be to arrange bridging finance (try the credit card type idea first and to look again at your marketing price.

xav, an interesting comment in red. Care to elaborate?

xris

[Green Fish]

Probably best to arrange bridging finance whichever way you go, because it puts you in a better negotiating position, in that you'll be able to settle if required.

I think Xav's point about a widely-drawn due diligence clause relates to what happens, rather than to some legal rule. If the clause amounts to an option, the purchaser can simply change his mind and pull out. The contract comes to end, and neither party is bound by it. (so the purchaser, having pulled out, cannot change his mind again.)

[Xav]

I agree with xris's suggestions.

If you are lucky, there may be another buyer lined up, in which case the vendor may agree to release you from the contract and refund the deposit less any difference in the purchase price.

xav, an interesting comment in red. Care to elaborate?

I think Xav's point about a widely-drawn due diligence clause relates to what happens, rather than to some legal rule. If the clause amounts to an option, the purchaser can simply change his mind and pull out. The contract comes to end, and neither party is bound by it. (so the purchaser, having pulled out, cannot change his mind again.)

For there to be a contract, it must be binding on both parties. It cannot be binding on one and not the other.

Ordinary conditions still bind the purchaser as it is obligated to do all things "reasonably necessary" for satisfaction of the condition (clause 8.7(2)). Failure do so can result in the purchaser being liable to the vendor (as was the case in Mana v Fleming).

If a due diligence clause is so wide it is essentially a "get out of jail free" clause, then there is no intention to be bound and the contract is not binding on the purchaser and therefore not on the vendor either. The risk in using an extremely wide clause is that the vendor will receive a significantly better offer while you are doing your due diligence and have its lawyer write yours a polite letter telling you that the contract is not binding on them and they have decided not to sell the property to you after all.

From a practical point of view, this is unlikely to arise as not many clauses are worded such that it is clear the purchaser does not intend to be bound by the contract. There is therefore likely to be uncertainty as to the outcome of any argument and correspondingly high legal fees, meaning the second offer would have to be a lot better than the first to make it worthwhile.

In the current market, this is particularly unlikely, but personally I would still steer clear of the versions of the DD clause which provides the purchaser is not obligated to give reasons for avoiding the contract.

[Green Fish]

Can't agree, Xav. Being bound is not a prerequisite to the formation of a contract. It's a consequence of it. In other words, the fact of the contract means that both parties are bound by it - not the other way around. The issue is what the parties are bound to. If the vendor is prepared to give the purchaser a "get out of jail free" card, then the vendor has to be stuck with that.

There is a rule that both parties to a contract must give something, however little, to the other (hence the peppercorn rent). The purchaser has given something, by making the various promises contained in the contract. You might say that these promises are not worth the paper they're written on, but they're still worth something.