PRDS@ ADVISOBY REGARDING MARKET
PRDS@ ADVISOBYREGARDINGMARKETCONDITIONS, MULTIPLE ANDNON-CONTINGEN OTF F E R S , FINANCINGi/APPRAISAL AND PROPERTYCONDITION
AIE
Revision Oale 5/06
The residential real estatemarketis, and historically has been,cyclical.Bay Areahousingvalueshave price experienced repeatedup-turns withextraordinary increases where in somecases- - anddown-turns, prices homesale descend,in somecasesdramatically. Factorscontributing to thesehomepriceswings includenational and localeconomic conditions and business cycles,and especially the significant and sometimes immediate influence thatbusiness anddeclinesrelatedto high-tech, advances bio-tech andother business enterprises exerton the housingsector.Beyondthat,thefactthatBayAreahousingdemandoften exceedshousingsupplyfurnishesanotherimportantexplanation for occasionally intensecompetition for limitedhousingstock.Yourrealestateagentcannotpredictmarketswings,andwhetherandto whatextent purchased realproperty todaywill,in thefuture,appreciate or depreciate in value.Inviewof theserealestate pricedynamics, thepartiesto the Purchase hereinareadvisedof thefollowing: Contract 1. MultipleOffersand Fair MarketValue: Whenit comesto residential housing offered tor sale,this persistent imbalance of inventory anddemandcangiveriseto "multipleofter" situations, wherein twoor more sets of prospective buyerscompete- - sometimesfiercely- - for the sameproperty.Vigorous priceand,forthatmatter, competition candrivea salespricewellaboveasking subslantially abovea ligure 'fair thatwouldrealistjcally be considered marketvalue."Oneperilforihe Buyerjn sucha setting is that pricecancompound an artificially highpurchase theeconomic consequences of a Buyer's needto sellthe propertybeforeit hasan opportunity (if it willat all)to a levelreflecting to appreciate the actualpurchase price,thusresulling possibility inthe of a netlossto Buyerattimeofsale. 2, Financingand Appraisallssuesand Risks: Another perilfora Buyerwhohas"won"sucha bjdding competition can jncludeinabilityor difficulty financing obtaining froma lenderwhoseobjectively derived appraisalcannotsupportthe actualpricepaid.A lender'sdecisionto approveof a Buyeras borrower takesintoaccountan evaluation creditworthinessi.e.,theprospects bothof Buyer's fortheBuyer'sability payments to continuously makemortgage andappraisal,i.e.,an objective fairmarket valuatjon of the propefty. price,thelender is appraised at a priceconsiderably belowtheactualpurchase Wherethesubjectproperty willtypically decline to makethe loanunlessthe Buyeris willingto provjde enough increaseddown paymentto covertheditference between theloanamount forandtheamount applied thelender(oncein receipt of lhe appraisal) is ultimately willingto lend.Thisincreased downpayment requirement canbe substantial and,depending on financingcontingency status,Buyer'sinabilityto bringin that increased amountmayexposeBuyerto fodeiture of hisdeposit, or worse.(lt bearsnotingthat,wherethe Liquidaied Damages clauseis notmadea partof thepurchase conkact,theeconomic exposure to a defaulting Buyer hasno limitor "cap".) Anotherlinancing-related riskariseswherea Buyerwitha loancontingency is puttingsucha substantial amount purchase price,thelender of moneydownthat,evenwithanappraisal farbelowtheBuyer's is still willingto lendon strength ol an auspicious loan-to-value ratio.The "risk,'therefore, liesin Buyer's contractual obligation to proceed withremoval (eventhoughtheproperty of thefinancing contingency didn't "appraise out"andBuyerfeelshe paidtoo muchfor theproperty), all becausethe lenderis indeedwilling to lend. Buyer'sInitialsi )(_) copyrighto 2007Advanced BealEslalesolutions,Inc. Elite Real.ySenier Sky Kim Ph(403)777.3399l-nx:(,[Cq24q 5,$o
Page1 oi 2
rnitiars serrers 1
t1h
)
FormBMC Reviqjd5/06
PRDS@ ADVISORY REGARDING MARKET CONDITIONS, MULTIPLE ANDNON-CONTINGENT (Page2 ot 2) OFFERS,FINANCING/APPBAISAL ANDPROPERTY CONDITION 3. Non-contingentOfters; AssociatedRisks: A contingency is a contractual condition(e.9.,Buyer's physical approval the Propedy) based upon which a Buyer, acting in goodfaith,canelect of condition ol the proceed penalty Financing, to not withthetransaction without or sanction, Buyers deposit. andcanrecover, propertycondition, insurance, to a Buyer. title and othercontingencies standas importantprotections - - wherein Accordingly, a Buyerwhoseotferis fully"non-contingent" all contingencies arewaived- protections. foreqoesimportant to Amongtheseis the rightto cancelthecontractbaseduponan inability posfacceptance physical problems. obtainfinancing lt is or upona discovery of serious defectsandother important to notethatthe discovery duringescrowof previously unknown delectsdoesnot (absentfraud) createforthenon-contingent Buyera newrightto terminate thecontract. Inherent in Buyer'sdecisionof whatpriceandtermsto includein an offeris (ononeendof the spectrum) the riskthata non-contingent whileattractive to a Seller,exposes contract, theBuyerto theriskof havingto possibly property eithergo throughwiththe purchase of a defective or withdrawandsutferthe economic consequences of default. At the otherendof the spectrum is the riskthatthe SellerwillrejectBuyer's contingent-laden olferin favorof a competing otferwithfewor nocontingencies. Notwithstanding theseimportant concerns, a Buyerwhois determined to prevailas successlul biddermay preferring generate freelyelectto assumetheserisksof non"contingency, insteadto an otlersutficiently attractive to a Sellerthatthe "risk"of beingoutbidby a competing reduced. Each olferis correspondingly buvermust,upon carefuldeliberation, decidehow muchof which risk he or she is willingto assume,Riskfactorsvary in eachtransaction and mustbe thoughtfully in eachcase.For considered pre-saledisclosure"packet" example,wherea non-contingent buyerhas accessto a seller-provided professionals, containing essential inspection reportsproduced by reliable, reputable theriskto lhatbuyer jnspections regarding thoseissuesis far lowerthanit wouldbe whereno havebeenundertaken at all.flg latterinvolves maximum risk.andisstronqlv discouraoed bv Broker. 4. PropertyCondition: lrrespective marketconditions, of prevailing Buyeris encouraged to engage propertyinspection professionals to examinethe subjectproperty,particularly wherethe Sellerhas not propertyinspection obtained anddelivered to Buyer(priorto Buyer'ssubmittal of an offe0a pre-sale report froma professional propertyinspectjon anddisinterested expen.As statedabove,a decisionby Buyerto waivecontingencies relating Buyer to property condition shouldbe madeonlyuponcareful deliberation. permitfilerecordsand shouldalsoreviewin advance suchexisting disclosures, inspection reports, building othermaterials that couldprovideinformation and insightsas to condition, valueand desirability. Buyer provided shouldcarefully reviewSellerandagentinformation in theTransferDisclosure Statement andany (e.9., additional disclosure thePRDSSupplemental SellerChecklist) information. Additionally, wherethe (andwhetherthetransaction contractprovides for a pre-close of escrow"Walk-Through" is or js not 'non" contingent"), Buyershouldavailhimself of thatrightandopportunity.
Date:
Date:
Buyer:
Seller:
Buyer:
Seller:
Copyright@2007 Advanced FealEstateSolulions, Inc.
Page2 ol 2
I:lteRe
ySefrios Sky KimPh:(403)777.3399Fax:(403) 2491400
FormBMC
Bevlsed5/06
AIE
Revision Oale 5/06
The residential real estatemarketis, and historically has been,cyclical.Bay Areahousingvalueshave price experienced repeatedup-turns withextraordinary increases where in somecases- - anddown-turns, prices homesale descend,in somecasesdramatically. Factorscontributing to thesehomepriceswings includenational and localeconomic conditions and business cycles,and especially the significant and sometimes immediate influence thatbusiness anddeclinesrelatedto high-tech, advances bio-tech andother business enterprises exerton the housingsector.Beyondthat,thefactthatBayAreahousingdemandoften exceedshousingsupplyfurnishesanotherimportantexplanation for occasionally intensecompetition for limitedhousingstock.Yourrealestateagentcannotpredictmarketswings,andwhetherandto whatextent purchased realproperty todaywill,in thefuture,appreciate or depreciate in value.Inviewof theserealestate pricedynamics, thepartiesto the Purchase hereinareadvisedof thefollowing: Contract 1. MultipleOffersand Fair MarketValue: Whenit comesto residential housing offered tor sale,this persistent imbalance of inventory anddemandcangiveriseto "multipleofter" situations, wherein twoor more sets of prospective buyerscompete- - sometimesfiercely- - for the sameproperty.Vigorous priceand,forthatmatter, competition candrivea salespricewellaboveasking subslantially abovea ligure 'fair thatwouldrealistjcally be considered marketvalue."Oneperilforihe Buyerjn sucha setting is that pricecancompound an artificially highpurchase theeconomic consequences of a Buyer's needto sellthe propertybeforeit hasan opportunity (if it willat all)to a levelreflecting to appreciate the actualpurchase price,thusresulling possibility inthe of a netlossto Buyerattimeofsale. 2, Financingand Appraisallssuesand Risks: Another perilfora Buyerwhohas"won"sucha bjdding competition can jncludeinabilityor difficulty financing obtaining froma lenderwhoseobjectively derived appraisalcannotsupportthe actualpricepaid.A lender'sdecisionto approveof a Buyeras borrower takesintoaccountan evaluation creditworthinessi.e.,theprospects bothof Buyer's fortheBuyer'sability payments to continuously makemortgage andappraisal,i.e.,an objective fairmarket valuatjon of the propefty. price,thelender is appraised at a priceconsiderably belowtheactualpurchase Wherethesubjectproperty willtypically decline to makethe loanunlessthe Buyeris willingto provjde enough increaseddown paymentto covertheditference between theloanamount forandtheamount applied thelender(oncein receipt of lhe appraisal) is ultimately willingto lend.Thisincreased downpayment requirement canbe substantial and,depending on financingcontingency status,Buyer'sinabilityto bringin that increased amountmayexposeBuyerto fodeiture of hisdeposit, or worse.(lt bearsnotingthat,wherethe Liquidaied Damages clauseis notmadea partof thepurchase conkact,theeconomic exposure to a defaulting Buyer hasno limitor "cap".) Anotherlinancing-related riskariseswherea Buyerwitha loancontingency is puttingsucha substantial amount purchase price,thelender of moneydownthat,evenwithanappraisal farbelowtheBuyer's is still willingto lendon strength ol an auspicious loan-to-value ratio.The "risk,'therefore, liesin Buyer's contractual obligation to proceed withremoval (eventhoughtheproperty of thefinancing contingency didn't "appraise out"andBuyerfeelshe paidtoo muchfor theproperty), all becausethe lenderis indeedwilling to lend. Buyer'sInitialsi )(_) copyrighto 2007Advanced BealEslalesolutions,Inc. Elite Real.ySenier Sky Kim Ph(403)777.3399l-nx:(,[Cq24q 5,$o
Page1 oi 2
rnitiars serrers 1
t1h
)
FormBMC Reviqjd5/06
PRDS@ ADVISORY REGARDING MARKET CONDITIONS, MULTIPLE ANDNON-CONTINGENT (Page2 ot 2) OFFERS,FINANCING/APPBAISAL ANDPROPERTY CONDITION 3. Non-contingentOfters; AssociatedRisks: A contingency is a contractual condition(e.9.,Buyer's physical approval the Propedy) based upon which a Buyer, acting in goodfaith,canelect of condition ol the proceed penalty Financing, to not withthetransaction without or sanction, Buyers deposit. andcanrecover, propertycondition, insurance, to a Buyer. title and othercontingencies standas importantprotections - - wherein Accordingly, a Buyerwhoseotferis fully"non-contingent" all contingencies arewaived- protections. foreqoesimportant to Amongtheseis the rightto cancelthecontractbaseduponan inability posfacceptance physical problems. obtainfinancing lt is or upona discovery of serious defectsandother important to notethatthe discovery duringescrowof previously unknown delectsdoesnot (absentfraud) createforthenon-contingent Buyera newrightto terminate thecontract. Inherent in Buyer'sdecisionof whatpriceandtermsto includein an offeris (ononeendof the spectrum) the riskthata non-contingent whileattractive to a Seller,exposes contract, theBuyerto theriskof havingto possibly property eithergo throughwiththe purchase of a defective or withdrawandsutferthe economic consequences of default. At the otherendof the spectrum is the riskthatthe SellerwillrejectBuyer's contingent-laden olferin favorof a competing otferwithfewor nocontingencies. Notwithstanding theseimportant concerns, a Buyerwhois determined to prevailas successlul biddermay preferring generate freelyelectto assumetheserisksof non"contingency, insteadto an otlersutficiently attractive to a Sellerthatthe "risk"of beingoutbidby a competing reduced. Each olferis correspondingly buvermust,upon carefuldeliberation, decidehow muchof which risk he or she is willingto assume,Riskfactorsvary in eachtransaction and mustbe thoughtfully in eachcase.For considered pre-saledisclosure"packet" example,wherea non-contingent buyerhas accessto a seller-provided professionals, containing essential inspection reportsproduced by reliable, reputable theriskto lhatbuyer jnspections regarding thoseissuesis far lowerthanit wouldbe whereno havebeenundertaken at all.flg latterinvolves maximum risk.andisstronqlv discouraoed bv Broker. 4. PropertyCondition: lrrespective marketconditions, of prevailing Buyeris encouraged to engage propertyinspection professionals to examinethe subjectproperty,particularly wherethe Sellerhas not propertyinspection obtained anddelivered to Buyer(priorto Buyer'ssubmittal of an offe0a pre-sale report froma professional propertyinspectjon anddisinterested expen.As statedabove,a decisionby Buyerto waivecontingencies relating Buyer to property condition shouldbe madeonlyuponcareful deliberation. permitfilerecordsand shouldalsoreviewin advance suchexisting disclosures, inspection reports, building othermaterials that couldprovideinformation and insightsas to condition, valueand desirability. Buyer provided shouldcarefully reviewSellerandagentinformation in theTransferDisclosure Statement andany (e.9., additional disclosure thePRDSSupplemental SellerChecklist) information. Additionally, wherethe (andwhetherthetransaction contractprovides for a pre-close of escrow"Walk-Through" is or js not 'non" contingent"), Buyershouldavailhimself of thatrightandopportunity.
Date:
Date:
Buyer:
Seller:
Buyer:
Seller:
Copyright@2007 Advanced FealEstateSolulions, Inc.
Page2 ol 2
I:lteRe
ySefrios Sky KimPh:(403)777.3399Fax:(403) 2491400
FormBMC
Bevlsed5/06
