Home Sellers Need to Understand Liquidated Damages

Liquated Damages Clause Can BE Valuable, But May Be misunderstood

Is a liquidated damages clause a good thing to have in a real estate contract? If so, for whom is it good? The buyer? The seller? Both? Like so many questions in real estate, and life in general, the first answer to such questions is, “It depends.” Before we get into that, though, a word about what a liquidated damages clause is.

A liquidated damages clause sets in advance — at the time of contract formation — what the monetary value of damages shall be in the event of contract breach by one of the parties. Often, a liquidated damages clause (actually, a paragraph or section) will include a recitation that the parties are agreeing ahead of time, because it would likely be difficult to determine the actual damages should a breach occur. But such a statement is not necessary.

A liquidated damages clause could be directed toward both parties. For example, “If either of us fails to perform, he will owe the other $10,000.” But it need not do so. Commonly, a liquidated damages clause will be directed towards only one. E.G., “If the commercial landlord doesn’t deliver the property within fifteen days of the date promised, he will owe the tenant $10,000.”

The standard residential purchase contract produced by the California Association of REALTORS®(CAR) contains a liquidated damages clause. It says this:

“If Buyers fails to complete this purchase because of Buyer’s default, Seller shall retain, as liquidated damages, the deposit actually paid. If the Property is a dwelling with no more than four units, one of which Buyer intends to occupy, then the amount retained shall be no more than 3% of the purchase price. Any excess shall be returned to Buyer. Release of funds will require mutual, Signed release instructions from both Buyer and Seller, judicial decision or arbitration award…”

Three items are worth noting: (i) This provision is asymmetrical. That is, it burdens only one party, the buyer. It does not provide for any preset damages should the seller breach. (Presumably, a seller breach could lead to a suit for performance.) (ii) It is limited. For residential properties of less than five units, one of which will be occupied by the buyer, the amount cannot be more than 3% of the purchase price. This has been set by legislation (Civil Code 1675). (iii) Payment of the damages would still require the agreement (by signatures) of both parties. That is because there has to be agreement that there has been a breach. Otherwise, a judicial or arbitration conclusion will have to be reached.

Signing (or initialing) a liquidated damages clause is optional. Although it is preprinted into the CAR purchase agreement, it will only apply if both parties so indicate. This is where problems, based on misunderstanding, may arise.

Commonly, when encountering a liquidated damages clause, a principal is liable to ask, “What does this mean?” It would not be unusual for an agent to say something like, “This means that if the buyer breaches, the seller gets to keep the deposit.” That, unfortunately, does not go far enough in explanation for many sellers. They need to know that it means that, in the event of breach, they would be entitled to no more than the deposit (or no more than 3% of the purchase price, if the deposit is larger than that). Often, when buyers have breached a contract, the seller feels wounded and entitled to more than the deposit. If a liquidated damages clause is in effect, that will not be an outcome.

Let us consider some possibilities. Say the purchase price of a single family home intended for owner occupancy is $300,000. The liquidated damages limit is 3% of the purchase price — $9,000. Suppose the CAR liquidated damages provision has been signed and that the buyer subsequently breaches.

(a) The deposit is $5,000. The seller has a right to the $5,000; but not to pursue the buyer for the additional $4,000. Liquidated damages is limited to the amount of deposit actually paid.

(b) The deposit is $15,000. The seller is entitled only to $9,000, the statutory limit.

(c) The original deposit is $5,000, but it had subsequently been increased by another $5,000.

(i) If the increased deposit was accompanied by a separate liquidated damages provision (CAR form R.I.D., Increased Deposit/Liquidated Damages Addendum), signed by both parties, then the seller would be entitled to $9,000 of the $10,000 actually paid.

(ii) If the deposit had been increased by $5,000, but no separate liquidated damages provision had been executed, then the seller would only be entitled to the original $5,000.

Is a liquidated damages clause a good thing? For both buyers and sellers the answer may be ‘yes’ and ‘no’. It depends. Suppose the buyer backs out — breaches — very early into the transaction. Typically, that would not cause a lot of damage to the seller. A liquidated damages provision may give too much to the seller. Conversely, a seller who has gone through a long escrow and who has made plans and commitments — sometimes financial — may feel that limiting the damages to the deposit (or 3% of the price) is not sufficient.

For both parties, though, if they have agreed to a liquidated damages provision, they at least know what is at stake.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way. His email address is scbhunt@aol.com.

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10 Things You Haven’t Thought Of That’ll Make Your Move Easier

Moving is one of the most stressful activities there is. It’s true – experts put it right up there with getting married – and divorced – and remodeling a house. If you’re getting ready to move or are in the process of buying or selling a house, you may have been thinking about the unpacking and the packing and the change of address and turning on utilities. But there may be a few things you haven’t thought of. These tips can help you make a smooth move.

1. Hook up your cable and internet ASAP

Many utilities require only a phone call to switch them to a new address, but cable/satellite and Internet are a different story. There are a lot of options out there today, but not all of them are necessarily going to be available in your home. Doing the research ahead of time, figuring out what’s best for your home, and making any necessary installation appointments as close to your move-in day (or even before, if you’re us!) will help ease the transition from one home to the other – especially if you have kids. And don’t forget to change your address with Netflix and any other similar services to avoid any interruptions.

2. Find doggy daycare options

Animals don’t always adjust to moves so easily. If you need to place them somewhere to minimize the trauma during the actual move and initial unpacking, you’ll want to do the research and make the arrangements in advance.


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3. Pack a box of essentials…

And take it with you. Bring anything you think you’ll need for the first night in your home, and then a few extras in case there’s a holdup with your moving truck and your stuff doesn’t arrive for a few days. If worse comes to worse and your moving truck doesn’t arrive as expected, you want to make sure you have the things you need to get you through at least a few days. Things like:

  • A couple of outfits for everyone for a few days – and don’t forget pajamas!
  • Towels and toiletries – soap, shampoo, toothbrushes, etc.
  • Blankets and pillows
  • Medications for every member of the family – don’t forget about any pet meds you have, too
  • A first aid kit
  • Jewelry and other precious items
  • Chargers
  • Toilet paper and paper towels – you’ll be glad you remembered
  • Paper plates and plastic cups and silverware
  • Dog food and bowls
  • Dog leashes and beds
  • Checkbooks and credit cards
  • Important papers including taxes, passports, social security cards, etc.

You may also want to bring a cooler filled with sandwich fixings and bottled water, plus some snacks like protein bars and peanut butter and crackers. It might be a day or two before you’re able to get to the market, and eating delivery pizza for every meal is going to get old pretty quickly.


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4. Think about the kids

A simple deck of cards or a new coloring book and crayons can be lifesavers if you have small kids who are getting bored with all that box carrying.

5. Do your due diligence when it comes to movers

Going with any old mover without checking them out first could end up being a disaster. If you’re not loading up a truck and driving your things to your new house yourself, you’ll want to take a few precautions.

“Get quotes from at least three moving companies, and make sure they do in-home assessments so your quote is as accurate as possible,” said HGTV. “Talk to family and friends for recommendations, or get free moving quotes from websites like Relocation.com.”

You’ll also want to research them online. Sites like Consumer Affairs and MovingScam.com are a good place to start.

Finally, don’t forget that moving expenses are tax deductible. “Obtain an IRS Change of Address form, Form 8822, by calling (800) 829-1040 or visiting the IRS website. You will be able to download and print form 8822 and most other IRS tax forms; e.g., Form 3903 to help deduct moving expenses,” said HGTV.

6. Sign up on Nextdoor

Nextdoor is a great way to network in your new neighborhood for things like babysitters and handymen and garage sales and the aforementioned doggy day care. Signing up when you’re moving in will also alert neighbors who may become new friends.

7. Leave the clicker!

If it’s attached to the visor in your car, you may forget and take it with you.

8. Change the locks

You never know who out there could have a copy of your house key. It’s a good idea to change the locks before you move in so you don’t have to worry that the cousin of the friend of the girlfriend of the guy who used to live in your house has an easy way in.


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9. Call a cleaning service

Most people clean before they move out, thankfully, but it might not be up to your standards. Plus, there’s just something about moving into a freshly cleaned place. If your realty company didn’t already take care of a move-in cleaning, you’re going to want to.

10. Find a doctor and dentist

If someone gets sick or needs medical attention in your new neighborhood, you want to make sure you know where to take them without having to Google the nearest random doctor. This is another place Nextdoor will come in handy.

WRITTEN BY JAYMI NACIRI

The 2017 Real Estate Forecast: Hot With A Chance Of Scorching!

According to forecasts just released from the National Association of REALTORS® (NAR), the Mortgage Bankers’ Association (MBA), and Freddie Mac and Fannie Mae, “We can expect a hot year for home sales in 2017,” said Realtor Mag, the NAR’s official magazine.

“NAR is predicting existing-home sales to reach 6 million in 2017, higher than its 5.8 million forecast for this year. But other entities are even more bullish. MBA is predicting home sales to eclipse 6.5 million next year, while Fannie Mae and Freddie Mac are both predicting 6.2 million.”

What’s driving this trend? “A huge wave of Generation Yers,” otherwise known as millennials, whose long-overdue march into homeownership may finally be happening. A strong showing from this group can prop up the real estate market not just next year, but for several years to come. “They are predicted to keep home sales and condo sales strong well in to 2020, according to economists,” they said.

Top markets for appreciation in 2017

While the overall picture for home sales next year and into 2020 looks rosy, sales and price appreciation will, obviously, vary depending on the market, with some of the usual suspects at the top.


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“The top markets for price appreciation likely will be in Seattle, Wash.; Portland, Ore.; Denver, Colo.; and Boston, predicts Eric Fox, vice president of statistical and economic modeling at VeroForecast,” they said. “These markets’ robust economies have growing populations but a tight supply of homes for sale on the market that will likely lead to some of the largest price increases across the country.”

Gord Collins notes that, “The top forecast markets show price appreciation in the 10% to 11% range,” with Seattle at 11.2%, “followed by Portland, Oregon at 11.1% and Denver, Colorado at 9.9%.


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The California Association of Realtors’ forecast shows “modest gains next year amid tight supplies and the lowest housing affordability in six years,” said the San Jose Mercury News. “Sales of existing single-family homes — which make up about 68 percent of the overall market — are projected to rise 1.4 percent in 2017 to 413,000 transactions. Meanwhile, the median house price — or price at the midpoint of all sales — is projected to rise 4.3 percent to $525,600. That’s the smallest percentage gain in six years.”

On the other end of the spectrum, cities like Detroit and Patterson, NJ may continue to struggle; both of these cities appear numerous times on WalletHub’s list of worst real estate markets; both made the list of highest percentage of homes with negative equity and lowest median home price appreciation. Patterson also has the highest average number of days until a house is sold, while Detroit is tied for most unsold homes owned by banks – dubious distinctions, indeed.

WRITTEN BY JAYMI NACIRI

How Color Helps Sell Your Home

Yes! Just like curb appeal matters, the colors of your home can and will influence buyers. With that in mind, we explore which colors tend to appeal to the masses.

The color scheme of your home, from the outside in, sets the tone. It’s like going to see a theatre play and seeing an intricately crafted and appropriately painted set for the production. It can immediately intrigue you–before the play has begun and even if you know few details about the play.

When it comes to color, be sure to consider the location. A peach-pink home in a retirement community might be okay, but that same color in an upscale, urban city may be unappealing to younger city dwellers.

The outside of your home is one of the largest areas potential buyers will see. So make your decision carefully and be sure to have a professional paint job done. If you choose white for the exterior, your home is likely to appeal to the masses, according to one study that indicated upwards of 40 percent of people liked white homes.

The great thing about a white home is you have plenty of options to make the home stand out by using an accent color for the trim. The downside is that white gets dirty very fast and shows it more than other colors. So before you list your home, make sure that you have a fresh coat of paint applied or pressure wash the exterior to bring back that newly painted look.

Also take into consideration the color of other homes on the block. Typically, white will not look out of place. However, if you had a purple home on a block where the homes are mostly beige and neutral colors, you’ll get noticed but won’t likely get the kind of attention you want.

Beige with neutral-colored trim is another popular color scheme. Both beige and white are safe exterior colors. They don’t turn buyers off.

There’s also been a trend to paint just the front door a deep, rich color like red. This may not be appealing to all. However, buyers would tend to overlook it because it’s a simple change as well as one that can easily and cheaply be changed to the new buyer’s choice. As long as the colors look good together, this wouldn’t necessarily turn buyers away.

The paint inside your home is equally important. In fact, one good tip for sellers is that if they can do nothing else, they should get some fresh paint up on the walls. The new paint helps showcase the home and gives it a new-home feel.

There are a wide variety of interior colors. Don’t feel like you have to go with only beige. You can be a little more daring, using bold accent colors. Just make sure the paint colors you choose don’t give a dark, closed-in feeling. Aim to create comfort, a sense of calmness, relaxation, and a place where family can unwind. Earth-tone colors convey this very well.

For a more chic and sophisticated look, interior designers often choose from the grey palette. A dark grey color can create a bold statement and attract the eye to a particular area.

Whatever colors you choose, remember that your aim is to appeal to the masses. Test the colors out first. Get opinions from the experts.

Your real estate agent has likely been in hundreds of homes and can offer you some very good guidance.

WRITTEN BY REALTY TIMES STAFF

Landscaping Tips That Will Wow Buyers

Your front yard is the red carpet inviting buyers into the beauty that is your home. If it’s rugged, messy and unkempt, buyers will take one look and then keep on driving to the next property on their list. Don’t let that happen by making your front yard luscious and as amazing as the inside of your home.

What areas should you focus on in your front yard? Where do you start? To help you break down the revitalization of your front yard, here are the steps you should take:

1. Cut the grass.

Buyers don’t want to trudge through high grass as though they were in the Amazon or on a safari in Africa. This means the lawn mower needs to be out at least once a week if not every other week, keeping it trimmed and maintained. It also needs to be green so it looks alive and lush. Water so the sun doesn’t dry out the lawn and turn it yellow or brown. A professional landscaper can help maintain a balance of trimming and growth so it looks just right for buyers.

2. Plant more shade trees.

One or two trees in the front yard are all right, but if you want to really add some shade, plant more. Shade trees will detract from the glare of the sun, and it can help decrease the temperature of the house if they’re placed close to windows. It also will help keep the lawn green with moisture. You can plant trees that are shorter and will grow by the time the new owner buys the home, but be sure they’re strong and can handle the climate.

3. Install outdoor lighting.

Outdoor lighting is a good way to both illuminate the house at night and accent parts of your yard. Depending on where you install the lights, your house will look very appealing at night to those buyers who might not have time to do their shopping during the day. Outdoor lighting also helps to illuminate a path like a sidewalk to get from the curb to your front door for easier navigation. It helps to accent the beauty of your landscaping which all together increases the beauty of your home.

4. Consider adding flowers for more color.

If your front yard has a lot of greenery, you should increase the yard appeal by adding more colors. Flowers are a great and simple way to do this, as well as shrubbery with different blooms. Perennials are the best for this because they last for more than a year, which means less maintenance for the seller and the new homeowner. They come in a wide variety of colors and types so the yard can be decorated with any number of them while still requiring less maintenance.

5. Keep everything clean!

In addition to keeping the lawn trimmed, everything else should be clean. Anywhere that can build up dirt or grime – siding, porch, front door, driveway – should be cleaned on a regular basis. Buyers don’t want to see a lot of dirt and mess, and it will detract from them wanting to walk into the house. So take a broom, a power washer and a few hours on the weekend to keep everything sparkling clean. Don’t have a power washer? A professional power washing service can cost as little as $293.

Photos courtesy of DesignMine

WRITTEN BY REALTY TIMES STAFF

7 Important Steps To Help You Buy Your First Home In 2017

Thinking about buying your first home? What an exciting time this is bound to be. And, also, what a (potentially) overwhelming, confusing, and stress-filled time. It can easily veer into scary territory if you’re not prepared and not surrounding yourself with professionals who can help guide you in the right direction.

These seven tips can help you make that dream of homeownership come true in 2017.

1. Work with the right real estate agent

The guy next door or your brother’s girlfriend’s cousin who just got his real estate license may be hungry to get your business, but that doesn’t mean he’s your best bet. An experienced agent quite simply knows things that someone who is brand new probably doesn’t. An experienced agent will also have important relationships in place that may be able to help buyers in every facet of the home purchase, including:

Finding houses that aren’t even listed yet

Finding homes that may be slightly outside of a buyer’s criteria but that are worthy of consideration

Leveraging industry relationships to get you great deals or better terms

Managing appraisals and inspections

Working through every step of the purchase process and handling any issues that pop up along the way

Negotiating a deal that works for both sides


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2. Don’t be afraid to talk to multiple lenders

Your Realtor will most likely have several lenders they have worked with and can refer you to. You may also want to speak to loved ones and get a referral or two from someone they’ve worked with successfully. Each lender may have a different recommendation and/or knowledge of a special loan that works for you, so it makes sense to look at a few different options.

3. Mind your credit

Many people have no idea what their credit score is, but if you’re thinking about buying a home, knowledge is power. Different loans have different minimum credit score requirements, and it could be that your score doesn’t measure up for the best loan rates, or maybe you need to do some work to qualify for even the most lenient loan.

A good mortgage lender can advise you on your best options to raise your score, from removing any errors on your credit report, to paying any delinquent accounts, to exploring credit repair options. The earlier you learn your score and delve into the details with a qualified lender, the more time you have to address any issues you find.


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4. Save, save, save

For many people, getting the down payment together is the hardest part of buying a home. And the closing costs can be an unwelcome surprise for those who weren’t expecting to have to come up with even more cash. When you first set out to buy a home, make sure you know how much you have to save. Your lender should be able to give you a pretty good ballpark based on a certain home price. Housing experts recommend adding 5% to that number just to be safe.

Even if you’ve never been a great saver in the past, there are strategies you can use that will help you build the nest egg you need for your down payment and closing costs, including these tips from nerdwallet:

  • Automatic transfers from your checking account to your savings can help to make the process mandatory – and maybe a little less painful.
  • Save raises and bonuses rather than spending them.
  • Set aside tax refunds.
  • Keep the change. At least a couple of banks have variations on this theme. For example, Bank of America allows debit card users to sign up for a service that rounds up purchases to the nearest dollar and puts the change into a linked savings account.
  • Visualize your goal. Slap big, beautiful photos of your dream house on the refrigerator, near your office workspace – and wrap a small one around the primary credit card in your wallet. You might charge less and save more.”

As for where to put that money while you watch it grow, experts recommend that “If the plan is to become a homeowner in the next 12 months, the money should be kept completely liquid. That means you can easily access it at any time,” said CNN Money. “The best way to do that is in a good old-fashioned savings account, Schulte said. Look for one with a higher yield. In today’s low rate environment, that probably means an online-only account like Ally or Synchrony Bank, which currently pay around 1% annually.”

5. Lock in your rate

Rates can be unpredictable. Locking in a rate when you get close to buying, which your lender will undoubtedly recommend, can protect you if rates rise. Many lenders also offer a one-time adjustment in case rates go down.


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6. Stay at your job

Not happy at work and thinking about making a change? If you’re looking to buy a home, you may have to delay that plan. Part of your qualification for a mortgage will be based on your job history. Making a big change just before you buy or during the escrow process will be problematic. Lenders advise buyers to stay the course until after the home closes escrow.

7. Don’t open new credit cards or buy a new car

Your lender will spell out the do’s and don’ts of how to protect your credit when trying to buy a house, but if you haven’t yet talked to anyone and you think you’re getting close to be purchase-ready, that Kohl’s card you take out to save 20% on your $100 bill could cost you. Before you take out any new debt, check with a lender.

WRITTEN BY JAYMI NACIRI

Home Looking Drab? Boosting Curb Appeal Is Easy And Worth It

Improving the curb appeal of your home will not only bring a smile to your face when you pull up after a long day, but it will leave you smiling all the way to the closing table. Boosting the exterior aesthetic of your home adds to your enjoyment, but also can dramatically improve the value at resale. By focusing on the three main areas of your home’s exterior, you’ll be proud no matter who is driving by.

Improving the driveway, garage, and walkway

In most homes, the driveway and the garage comprise a significant portion of the home’s curb appeal, yet they are often overlooked by homeowners. Ensuring your driveway is in good condition and free of weeds will automatically freshen the exterior — edging your driveway with coordinating stones or pavers can also enhance the appeal.

Also, take some time to inspect your exterior walkway. Is it in good condition? Does it enhance the other exterior features? Upgrading a walkway with pavers or flagstones is relatively inexpensive and can dramatically change the way you feel walking up to your front door.

Garage doors can also set the tone for a home’s appearance. Consider touching up garage door paint or replacing your door altogether. With a wide variety of materials to choose from, a new garage door can transform your home’s exterior. Doors are available in wood, steel, and fiberglass with countless choicesin design and color.

Attending to your home’s exterior

A home with siding and paint in good condition that blends well with the neighborhood and surrounding landscape will offer a more serene experience. Even if your paint is in good condition, consider power washing the exterior to remove dirt and grime that can diminish its appeal. Renting a power washer for the weekend is inexpensive but can reap massive rewards in how your home looks and feels.

Small changes to the entryway can have a dramatic impact on visitors. Replace broken or rusted lighting fixtures, update door hardware, and embrace symmetryat the entry point. Even the simple act of repainting your front door with a fresh shade can add tremendous appeal. Installing additional lighting along a walkway or dark areas can also enhance these exterior spaces.

Luscious landscapes

Landscaping is one of the primary ways to make a dramatic impact on how your home looks. Improvements in landscaping are thought to return about 4 to 5 times your investment when it comes to selling your home. To maximize your time and investment, first, assess what of your existing landscape can be used or improved. Trim overgrown bushes, prune trees and refresh mulch or other ground covering. Peeling back the overgrown exterior can attract some unwanted attention to your home — consider purchasing home insurance ridersto protect any belongings not covered in your policy.

Adding plant beds to feature climate appropriate plants will help you maintain your landscape with less hassle and will enhance the natural beauty of your lot. Choose annuals to add bright pops of color, either in beds or matching planters at the front of your home.

Lastly, attend to your lawn. Patch dead areas with sod or seed and ensure you are caring for your lawn using recommended methods — mow regularly, use fertilizers and weedicides as needed, and make sure your clean up after any pets. Stubborn bare patches can be transformed into unique flower beds or improved with alternative ground cover, such as ivy, in areas where it is too shady for many types of grass.

With some simple and inexpensive fixes, you can create an exterior that you are not only proud of but that you enjoy spending time in. Not only will this improve your happiness in your home, but it will also reap benefits when you’re ready to move someplace new.

WRITTEN BY MIKKIE MILLS