An Offer Can Be Revoked by Buyer Before the Home Seller Accepts It

QUESTION: The sales market for homes in our town is slow. It is definitely a “buyer’s market.” Our home has been listed for sale about three months, so we were thrilled when our agent phoned to say he had an offer on our house.

It was about 9:30 p.m. when my husband got home from bowling and our agent arrived with the buyer’s agent. But we were very disappointed at the offer of almost $7,500 below our asking price, as we knew our home was priced fairly. Our agent suggested a counteroffer at $3,000 above the offer, but the buyer’s agent said she was pretty sure her clients wouldn’t accept.

Since we were tired, against the advice of the agents we decided to sleep on the offer. The next morning my husband and I decided to accept the offer. At about 9 a.m. I called our agent to tell him we would accept. But he informed me the buyer’s agent had already phoned to say the buyer was backing out, even though the offer said it was valid for two days. Can the buyer do this?

ANSWER: Yes. Your situation is a classic example of why home sellers should accept a purchase offer quickly before the buyer revokes it.

An offer can be revoked at any time before it is accepted. Even though the offer said it was valid for two days, unless you paid consideration to keep the offer open, the buyer could revoke it during the two days before it was accepted.

Most cities now have “buyer’s markets.” That means there are more homes listed for sale than there are qualified buyers. It is a great time to be a buyer, but not such a good time to be a seller (except in a few “hot markets,” such as Seattle and Sacramento). In a buyer’s market, sellers can’t be too fussy. Your situation shows why delay in accepting a purchase offer can be very expensive. Ask your attorney to explain further.

Oral Contract to Buy Home Is No Contract

Q: At a Sunday open house we agreed with the seller on the price and terms of the sale. Since there was no real estate agent, the seller arranged for us to meet with his lawyer on Monday.

But when we arrived at the lawyer’s office, the seller told us she realized the price was too low and she wants $5,000 more for the house. Although we didn’t sign anything on Sunday, our agreement was observed by our 22-year-old son, who can testify as to the terms of the sale. How can we get the house at the agreed price?

A: Sorry, an oral contract to buy real estate is not a binding contract. The Statute of Frauds requires agreements for the sale of real property to be in writing to be legally enforceable in court.

Without some evidence of the terms of the sale, even the testimony of your son would not be sufficient to overcome the Statute of Frauds requirement.

Wraparound Loan Is Making a Comeback

Q: Our home has been listed for sale since January, but it has not sold because the market for home sales in our town has been slow. Since we have an assumable FHA mortgage at 9.5% interest, our realty agent suggests that we take a 20% cash down payment from the buyer and agree to carry back a second mortgage for the balance of the sales price. As we have already bought our new home, we can afford to do this. But we are concerned about the safety of second mortgages. What do you advise?

A: Listen to your smart real estate agent. Seller financing is making a comeback. Wise home sellers who will help finance their buyer’s purchase are learning such easy financing makes the home sell for a higher price than if an all-cash sale is required and stand out from the crowd of unsold homes.

Carrying back a mortgage on your former residence is a safe investment if the buyer makes a reasonable cash down payment. Your situation is ideal since your buyer can assume the existing FHA first mortgage, which has a reasonable interest rate.

However, to increase your safety, I suggest you carry back a wraparound mortgage instead of just a second mortgage. The buyer will make one monthly payment to you. From this payment you then will use part of the money to keep up payments on the FHA first mortgage. Then, you will be certain the first mortgage payments are made on time.

To illustrate, suppose your home sells for $100,000, the buyer makes a $20,000 down payment and the first mortgage is $50,000. You could carry back a $30,000 second mortgage for the balance. But you will be better off carrying back an $80,000 wraparound mortgage. You can even earn a little extra interest. For example, if the wraparound loan has a 10% interest rate, you will earn the .5% differential on the underlying $50,000 loan at 9.5% interest in this example.

When Loan Fees Are Tax-Deductible

Q: I recently filed my 1989 income tax returns, but I think I was ripped off by the IRS. Before filing my returns I called the IRS three times to check on the deductibility of a $3,450 loan fee I paid when I refinanced my home mortgage in 1989. Two times I was told I cannot deduct the fee. But the third IRS agent said I can deduct the fee, but only one-thirtieth each year over the 30-year life of my mortgage. Were any of these answers right?

A: Congratulations. On your third call you received the correct answer. The first two answers were incorrect.

If you were buying your principal residence, the loan fee is deductible in full in the year paid if you pay the loan fee by separate check to the mortgage lender. However, when the loan fee on an acquisition mortgage is subtracted from the loan proceeds, then the IRS says the loan fee must be deducted over the life of the mortgage.

However, you were not buying your home, but were refinancing its mortgage. That means your loan fee must be deducted over the life of the 30-year mortgage. To illustrate, since you paid a $3,450 loan fee you can deduct $115 itemized interest for each of the next 30 years.

Lease-Options Good for Home Sellers

Q: You often suggest that buyers acquire homes on lease-options. I can see many advantages for buyers, but are there any lease-option advantages for home sellers?

A: Yes. In today’s slow home sale market in most cities a lease-option makes your home stand out from the crowd, so you will get action while other home sellers wait for a buyer. Another advantage is that you can get top dollar for your home on a lease-option, whereas if you insist on a cash sale you will probably have to reduce the price.

A further benefit is the buyer’s option money, called non-refundable consideration for the option, is not taxable until either the option is exercised or it expires. Lease-option sellers often get higher than market rent, usually enough to pay the mortgage payment plus property taxes, and the tenants will treat the home as if they already own it. Finally, the rent credit toward the down payment practically assures the tenant will buy the house before the purchase option expires.

Get Termite Report Before Listing House

Q: If I might make a friendly suggestion to my fellow real estate agents, it would be to recommend that your home sellers obtain termite and professional inspections of their homes at the time the listing is obtained.

In the last few months I have lost two home sales because these inspections, obtained after the sellers accepted my buyers’ purchase offers, revealed so much damage the sellers refused to pay for repairs and the sales fell apart.

Both houses obviously needed repairs, but the inspections found extensive additional damage that my buyers refused to accept and the sellers wouldn’t pay to have corrected. These problems could have been avoided if necessary inspections had been obtained at the time of listing.

A: I appreciate your valuable suggestion. The more information the listing agent can give prospective buyers about a home, the more confidence buyers will have in that home.

Letters and comments to Robert J. Bruss, a San Francisco-area lawyer, author and real estate broker, may be sent him at P.O. Box 280038, San Francisco 94128.