Thursday, March 31, 2005

Buying from an institutional owner -- you need fortitude!

"It takes fortitude," said Anchorage Opera's former director when I told him I wanted to see the entire Ring cycle by Wagner.

The same can be said of you if you want to buy a property from an institutional owner. These include bank foreclosures and homes taken into inventory by relocation companies.

I get the assignment to market these properties on a regular basis. So I see what buyers go through when they develop an interest in them.

It's frustrating for these buyers who are used to dealing with live sellers in our market. They expect an answer right away, and don't want to mess around with lots of paperwork.

It just doesn't work that way with institutional owners. They can take days to answer. I've got one deal in the works now where the owner, for understandable reasons, was nearly a month answering the offer.

The paperwork can be impressive. On the one hand, institutional owners usually give out an Alaska disclosure form that says they don't know doodely about the property. At the same time, as their representative I may have accumulated lots of stuff, like the entire file of public records on the well and septic systems, for instance. Part of the purchase process involves the necessity to review and sign for all this information.

There is almost always a seemingly baffling multi-page form from the institutional owner that sets forth their own rules of the transaction. It's in the nature of a counter offer and you need to read the fine print: there may, for instance, be a daily penalty for not closing on time.

These contract provisions may vary from local practices. You can try to negotiate away something that simply doesn't work for you, but understand that these clauses are written for use all over the country. The people who handle the process are usually busy asset managers and relocation company counselors. They are often not inclined to cater to your individual preferences in Alaska.

It takes fortitude. On one property I've marketed this month we sold it twice and never got it all together because in both cases the buyers got mad when they didn't get an answer right away and they walked away. Too bad for them: on the third go-around I had four offers and somebody who was more patient is getting a pretty good deal.

That's the end benefit of buying this type of property. With a little care -- and competent professional assistance -- you can come up with some pretty good deals. Unlike a private seller, an institutional owner has no motivation to hold a property indefinitely. It's for sure in a "must sell" mode.

Thursday, March 03, 2005

Termination and Default -- What's the difference?

A new purchase and sale agreement has come in use in the Alaska market this year. It makes many improvements. One such improvement answers questions that always come up when the buyer or seller don't do something the contract calls for.

The new agreement frequently uses the word "terminate". For instance, if the seller fails to accept the offer by the day and time the buyer states in the offer, the offer terminates. If the offer has been agreed to and the buyer fails to produce a letter from the lender that verifies the buyer's qualifications, the agreement terminates. If the buyer and seller fail to agree on a buyer's or a lender's repair requests by the stated date, the agreement terminates.

Nobody has to do or sign anything when an agreement terminates. The deal is off and the buyer's earnest money gets refunded.

Default is a different matter. The rules are different for buyer and seller.

A buyer is in default if he or she fails to tell the seller that the lender won't meet the agreed date for granting a loan commitment. A buyer is in default if after obtaining a commitment he or she doesn't close.

A seller might be in default if the seller doesn't close without good cause.

If a buyer is in default the seller gets the earnest money. By contract the buyer and seller agree that this is the entire remedy for a buyer's default. The seller can't pursue a claim for other damages, or get a court order requiring the buyer to close.

By contrast, if a seller is in default, a buyer would have the right to seek specific performance.

For full property searches, virtual tours and many other Anchorage real estate resources, visit