[Music] Hello everyone and Welcome to another episode of Selling Greenville your favorite real estate podcast here in Greenville, South Carolina it is your favorite right it is 100% your favorite there are not very many real estate podcasts here in Greenville South Carolina I have a little bit of a corner on that market and so this one's definitely your favorite I am your host as always Stan McCune I'm a realtor here in Greenville South Carolina you can find all of my contact information in the show notes if you need to reach out to me for any reason particularly if you have real estate needs I don't make money from this podcast I only make money if you guys actually use me as your realtor so if you're benefiting from this podcast in any way I would appreciate if you guys could utilize me as your realtor many of you already do many of you have referred me to others and I appreciate every single one of you that have done that and please if if you do benefit from this podcast we're trying to get it out to as many people as possible please leave a rating please leave a short little review Please Subscribe hit the little subscribe button or checkbox or whatever it is on your on your app that you're using I have this podcast on a lot of different apps Spotify Google play iTunes Audi boom a lot of things like that so so please subscribe make sure that you don't miss any future episodes today today I want to be talking about contract changes that are coming in the state of South Carolina when it comes to residential real estate but particularly I want to go back and review what happened with the changes and what has been happening with changes that were made last year for those that are longterm long time I should say longtime listeners of this show you know and and perhaps even if you're not a longtime listener of this show if you're just very active in local real estate you know first off that the vast majority of retail residential real estate transactions occur on a single contract form that we know ASR which stands for the South Carolina Association of Realtors form 310 this is the contract form that a retail transaction generally takes on when it's a a residential deal that's happening a major change was made so so the second thing if hopefully that was the first thing you knew and if you didn't now do the second thing that you might already know so if you do I apologize but for those that don't last year a major change was made to the section dealing with inspection and repair rights and we used to have multiple different options for what an inspection period would look like for the buyer and that was just changed to a simply straight due diligence period all right now here's what due diligence means again this is going to going to be review for some people but I promise you it will be worth the payoff because I'm going to be talking about how this has evolved just in the past 6 to eight months all right so for those that this is new for the due diligence period operates like this it used to be in the old days that sellers had a certain responsibility for well they always have had and they still have a responsibility for disclosing major issues with their home that remains there is still a seller's disclosure it's still the seller's responsibility to disclose major issues with their home what has changed is sellers then used to be required to make certain repairs structural repairs repairs that related to roof leaks things of that nature what changed is that this went away from all of that because that became very subjective there was a lot of in fighting there's a ceiling spot on the on the ceiling is that a roof leak can we ask for repair there is settling you know a certain window shows signs of settling is that a foundation a structural issue is it not there was so much back and forth happening and so much negotiating happening mid transaction that it just was it it was too much the the South Carolina Association of Realtors was getting too many complaint calls too many people arguing doing too much infighting and so they decided to change it to a straight due diligence contract which this was always an option before that's what's interesting is that due diligence was always an option in the past but it was usually only used for investment types of properties and typically here's here's what due diligence means all right so let's just get to the meat and bones of it it means that the seller during their due diligence um they aren't require during the buyer due diligence they aren't required to do anything buyer can come back and ask for this repair or that repair the seller does not have to do a single thing if if it comes back that there are tons of structural issues the seller doesn't have to do anything about it now what is the buyer's leverage well the buyer if the seller can't do anything or chooses not to do anything the buyer can then back out and then it's the sellers obligation at that point now they have to disclose those issues that were discovered and if there were issues that the seller knew about and didn't disclose now they're potentially up for litigation they could be in legal trouble for not disclosing things to a buyer and now the buyer has costs they have inspection costs they've now been out of the market and possibly lost out on homes that they could have been interested in now there's a a potential legal issue that the seller has to deal with it sounds like okay well that sounds like it's way too buyer friendly well there's leverage that the seller has as well over the buyer and that leverage comes in the form of a termination fee this contract it doesn't have a standard termination fee it's a blank the blank has to be filled in so the termination fee means that the buyer during the due diligence period they have to pay the termination fee if they back out during the due diligence period And if they choose to endure the due diligence period and and they get past the due diligence period now the termination fee goes away now it's the earnest money that's up for for dispute if the buyer were to back out so hopefully that all makes sense I don't want to get into a lengthy discussion about that if you want more details on that i' I've had a couple of episodes where we've discussed it go back and and listen to those and then it'll make more sense but the way practically the way it works is the buyer has a couple of weeks typically again the time frame is is up for interpretation but the buyer has a couple of weeks to do whatever due dilig due diligence they want to do anything they can have a gazillion inspections if they want or they can do nothing they can just do a walk through or they can have a contractor go in there they could do whatever they want previously you had to have a licensed South Carolina home inspector that was a that was a big part of the contract now not a big deal anymore it doesn't matter so they have a period of time that is written into the contract whatever period of time both parties agree on where all of those inspections can be done and then and this is important before the end of the due diligence period the buyer has to tell the seller whether they want something out of this and that something can be literally anything it can be I want you to do this list of repairs it can be I want you to come down on the price it could be I want you to pay some of my closing cost now in lie of of repairs obviously you don't put that into the contract cuz lenders don't want to see anything in lie of repairs but functionally that is every everyone understands and agrees that that's what's happening or it can be any combination of those things so there I mean it could be the buyer might not ask for anything maybe the buyer asks for home warranty I mean literally anything can be renegotiated during that due diligence period the seller can agree to it the seller can not agree to it or there can be some kind of a compromise that's made and again the primary leverage that the buyer has in in this situation is that if the seller let's just say the seller says forget I'm not doing anything then the buyer really their only Leverage is to back out and if they do then they have to Forfeit that termination fee whatever was agreed upon so we've now been in this system for several months and I have seen a a lot of different ways that this has played out it's very interesting when it first came out I said this and you can listen to this on my previous podcast where I've discussed this is that in a seller's market this is a very seller friendly way of structuring the inspection period and in a buyer's market it's very buyer friendly and here's why because it's completely open-ended because in a sell's market the seller can ask for a really high termination fee and basically make it to where the buyer has tons of skin in the game whereas in a buyer's market when sellers are not getting a whole lot of activity or a whole lot of offers then the the the buyer can present an offer they might have a z termination fee they might be asking for what we what South Carolina Association Realtors likes to call a free first look well that means that they can back out without any repercussion and so that's what we have here is that what during so I went to a lot of classes last year about this and they would ask do you think that this is more friendly towards sellers more friendly towards buyers and pretty much every time the class would raise her hand for the sellers oh man this is so much more friendly for the sellers but that was because we were still in the middle of this crazy sellers Market with like one month of inventory multiple offers on everything now that the market has shifted and again as I've said before we are nowhere near seeing a buyer market yet but it's balanced out a little bit more and so now that it's balanced out a little bit more we are seeing a little bit we're we're seeing this not to be nearly as seller friendly as it was before and here's what I tend to be seeing as kind of the standard oh sorry there was one thing I I forgot to mention before I need to go back and mention this the when you deliver a list of repairs in the old system um during your inspection period you could the final day of your inspection period deliver a list of repairs and then the the seller had a few days to to respond then the buyer had a few days to respond to the seller's response that was also a confusing part of it was all of these days for the due diligence period once that date comes it is over the buyer is now committed their earnest money is now on the hook once you get past that date so that's why it's very important all of the due diligence has to be done several days before the end of that period and then everything has to be negotiated with the seller no later than that due diligence period end date um and so there's a a little bit more of a time crunch when it comes to some of this stuff so here's what I'm kind of seeing generally speaking here's kind of the standard where this has kind of normalized I'm seeing typically that buyers are trying to start with a very low termination fee and roughly a 10 to 14 day due diligence period I saw saw I had one offer coming recently on a listing of mine that had like a like a 4-we due diligence period um that was the longest I've seen I saw one recently as well um on a different listing that I had that had a very short due diligence period it was like six days or six calendar days something like that um but typically we're seeing 10 to 14 days and we're seeing very low termination fees what do you mean by very low termination fees what I mean by that is either somewhere between 0 and $500 to me that's very low the standard for earnest money is 1% of the contract price right now the median price of a home in Greenville MLS is 300,000 so you would on average expect for the earnest money to average out to around $3,000 per contract um the termination fee much much less buyers right now are seeing that the market has shifted a little bit and they're offering very little um but that being said for my sellers so so for my buyer clients if we're not in a multiple offer situation that's exactly the strategy that I'm using that I'm encouraging for them let's try to get this as low as possible to give you maximum leverage right because if you have an easy out then you have all of the leverage on your side for my sellers it's the exact opposite if we get an offer like that that has $0 or $250 I'm trying to for that for that termin ation fee um which is the amount the buyer has to pay if they back out during the due diligence period I'm trying to get that number up as much as possible um that is a a a really important piece of this for everyone and and you know sometimes you try to get it up and you can't get it all the way up so I had an offer recently where the the termination fee someone offered $100 during their due diligence period for the termination fee and I was like you know $100 that doesn't give me confidence that you really are sold on this house that you really want to purchase this house and so we counted back with $11,000 which I thought was reasonable and they came back and they said we're not willing to go up to $1,000 but we'll do $500 now this was in full disclosure this was a house that I was flipping I've flipped a few houses recently something I do on the side so I was the listing agent and the seller in this instance um so this was strictly my opinion what I felt about it and here's what I felt about it I felt okay I don't feel great about $500 versus $1,000 which is where I wanted them to go to but they did come up from a 100 and I don't know all the thinking that was on their side but having $500 that's a relatively I mean it's not great skin in the game but that's something that hurts you lose $500 um you know you can you can take a a little weekend getaway somewh where for for $500 if you're Savvy um and so nobody wants to just forfeit $500 and so to me it was I I like the fact that they were willing to meet me kind of in the middle and that that showed me that they were at least somewhat interested in the home that showed me that that they um it it it gave me a little bit of a sense of what they were doing on their side and this is generally speaking a tactic that I like to use is when I'm representing a seller I I do when a an offer comes over I do like to even if it's a really strong offer there are some exceptions to the rule I mean if it's just to knock your socks off type of offer I don't necessarily encourage this because it can it can sound nitpicky but if if an offer is trying to you know it has a few little buyer friendly Provisions in there I like to do a reasonable counter on a few things just to see how does the buyer respond because that gives you an indication of how the transaction is going to go that's a very important Little Nugget of data that you have as you're kind of negotiating with them and so I I I like that and and this was also an interesting transaction because from other standpoints in terms of how they handled their due diligence period I'm 99% sure that they did not ever hire a licensed inspector what I believe that they did is that they inspected it themselves they maybe they're handy I don't know um but I'm very very sure that they went through the house themselves and identified the things just from their opinion that they thought needed to be fixed or replaced or whatever and that might sound like something that you wouldn't want right if you were a seller because it is subjective and there were some major headaches with how this H happened but generally speaking Hey listen if I have someone purchasing a property that I have listed and they're not hiring a licensed home inspector to look at every single thing wrong with the house to me that's a win for for me as a listing agent for my seller even if the buyer doesn't really know what they're looking at that's honestly part part of the reason why that's helpful for the seller um they're just not going to find as much stuff as a licensed home inspector will find so um so I find found that to be very interesting now in in terms of what buyers are then going back and asking for like what that negotiation looks like um we're seeing really I I feel like it's gotten a lot better in terms of just being a smoother process from what it was before when we had that list of stuff that the sellers had to do um and then if they didn't then the buyer could back out all of that type of stuff it has gotten in my opinion a lot smoother now and what we're seeing is a lot more of okay um here's here's a list of repairs and then the seller looks at it and the seller says you know what I'll do five or six of these things but I'm going to offer a home warranty for these other things um or let's um let's handle let's not worry about any of these things let's just do cash let's just let's just offer the buyer just some cash at closing and let's just wipe our hands of of any of these repairs in some instances you know I have some buyer clients recently that we were talking about it and for a variety of reasons I didn't personally and they agreed with me I didn't personally feel comfortable asking the seller to make repairs because it was like they had done some other things in the house there was some deferred maintenance in the house and it was just kind of like you know what do we really think they're going to do a good job on repairs if we ask them to do repairs I was skep so it's just like let's just go back and let's just ask them to pay for some closing costs and what I did a little wrinkle that I did to make them feel good cuz we still had several days left on the due diligence period um I basically included language from the repair addendum I I copied language sorry from the repair addendum that states once ratified um the due diligence period has has essentially ended that's not exactly how it's worded it's it's very very legally phrased where it says something like the buyer's right to due diligence terminate this contract has expired or something like that anyway I just copied that language and just pasted that into this addendum where we were asking for the seller to pay additional closing costs and that way it told the seller once you agreed to this we're not asking for more things right because otherwise if I hadn't done that we would still be in due diligence the the buyers technically could still you know pull something funny and try to get the the seller to also have to agree to some other things so that was a way to get the seller to agree to an additional closing cost expense that probably hurt I mean it it was it was not we're not just talking about like two or three hundred bucks it was it was a bit more than that and so we helped to soften the blow a little bit by then saying okay we're this ends the the due diligence period when all parties sign off on this um and again I feel like so far the way this has gone it has been a better system for everyone really since the start of the new year or maybe even going back a little bit further than that we're not really I haven't seen a whole lot of termination fees higher than $1,000 it seems like that's kind of that's kind of where things are cutting off and and specifically for properties that are are below 500,000 in in purchase price I I need to clarify that for more expensive properties yeah for more expensive properties that number is way way higher and that's still there's still a lot of negotiating that happens in that instance um but for the vast majority of real estate transactions in the upstate which are fewer than $500,000 we're seeing often times those termination fees are not exceeding $11,000 because again again we're not having as even though we're not in a buyer market yet we're not having a lot of those multiple offer situations where people are having to go back and forth having to compete on all of these different terms and all of these different things but that is for me when I have a listing and I have you know buyers agents calling me and asking me hey what do you think that is important to your buyers um that's always kind of a a weird fishing question because the answer is always going to be the same right they want the most money the best terms you know etc etc um but what I always talk to my sellers in advance is with this termination fee is that that's a major part of how we're going to assess offers because that tells you how much skin in the game the buyer has and so when I get those fishing questions from buyers agents about my listings I will let them know right away you know well of course my sellers they want the most money they want they love you know friendly financing terms quick turnaround all of that but we're going to put a lot of value on the termination fee in addition to these other things do not come in with a$0 termination fee and expect this offer to be seriously considered it's just it's just not going to happen we're not in a position of panic um and that's an important Point as well with my seller clients I'm encouraging them Hey listen this Market this is not what the market felt like for a couple of years this is not where you know you heard your friends that were selling their home and getting 10 offers in the first 24 hours that's not the market that we have right now you need to be patient don't fret don't freak out don't be worried we didn't get any showings in the first couple of days all of these different things it it will sell it will sell we just need to let the market take its time the market is taking a lot more time right now buyers are you know they're kind of dilly-dallying around not being super urgent letting the market kind of play out and so things are just taking longer than they have in the past but because of that you need to make sure you you don't need to then be like okay because things are taking so along I need to surrender a bunch of of these terms no it's not worth it it's not worth it to go under contract give a buyer an easy way out and then in the end you end up putting the house back on the market you've lost potential buyers that would have been interested that went that went under contract for another house during that period and now here you are in a situation where you took your home off the market for a couple of weeks and have nothing or very little to show for it and so that's something that is is is really really important to my sellers I know I've I've mentioned that in the past as well so as the market continues to shift I think that we've kind of normalized for the current market and this being what it is I think we're going to see a lot of thousand and Below termination fees that's that's all the skin that it's that buyers are going to have in the game is you know 500 250,000 maybe in some cases $0 that is what we're seeing over and over again and so I think that that is where this has kind of normalized now I mentioned before I got an offer recently where the due diligence period was like for a month no way no way there there are no circumstances in which a buyer should have I mean even if I'm representing a buyer I don't want a month due diligence period like what are we going to do get the inspections done right away don't don't you don't want to fool around with that kind of stuff so in an instance like that if I'm repres representing the seller we get a an offer with a month-long due diligence period I'm either a just G to suggest to my seller that we just counter that back or I'm going to you know if if that becomes a big sticking point for the buyer I want to know what is going on here like why is it that you're requesting for that much of a due diligence period that's just an abnormally long period of time to have something like that usually you can get all of your inspections done within just I mean really just a week there there in most cases there's no reason to need more than a week to get the inspections done and then of course you need time to review and then you need time to to get with the seller and then the seller needs time to review and then they need time to respond so usually 10 to 14 days is plenty of time to get all of that completed as long as you're on top of it so that's another thing that I think people are still trying to figure it out I think they're being told I think a lot of agents are being told by their brokerages hey give yourself as much time as possible because this takes longer than before you don't need to give yourself that much time that doesn't that doesn't in that doesn't make the seller feel great when the buyer has a month where they can back out of a contract that's an AB normal way of of handling this so that is just my personal opinion on what I am seeing boots on the ground from all of this generally this has worked pretty well I haven't had too many instances of people trying to back out I haven't had people trying to to take advantage of the system it's been a system that has worked well so far I've actually only had one instance this entire time sorry I shouldn't say one instance I've had cuz one of them was a property that I sold so I've had in total two instances since we went in this due diligence model of people backing out and having to pay a termination fee and one I was representing the buyer and one I was representing the seller and so I feel sorry three instances man I need to go back I I've not really thought about it too much three instances what's weird is that two of them were one was an investment property that I owned that I was selling and then another one was my primary residence I had an instance where so I moved the past year and I sold my primary residence and we went under contract at first with one buyer and they were it was kind of a a confusing thing but they looked at it and then they brought their they went we went under contract then they brought their children over their children didn't like something about it and so they backed out so I've had two instances where I was on the buy side and sorry one instance where I was on the buy side representing a client and they backed out and had to pay the termination fee which wasn't very much it was like $250 and then at least two instances I can think of where I was on the seller side where I've received in both instances I was I was representing myself I received a termination fee had the the people back out and they had to pay a termination fee and so that it's it's in relative terms with the amount of volume that I'm doing in terms of my buyer clients and my seller clients that's not very many times for people to back it out excuse me not very many times that people have had to back out and so I think that that means that at least for me the way I'm handling this the system is working now I want to real quickly discuss a few other major contract updates that are coming this is not to form 310 but this is to a few other things I'm just going to go over this really quickly South Carolina Association Realtors they are adding this year a vacation rental slsh short-term rental addendum this is great highly needed when properties that are airbnbs are being sold um they need this type of an addendum that clarifies whether whether the seller is delivering rent rolls whether the seller is delivering you know here is future bookings all of that whether the buyer is going to continue to keep this as a short-term rental whether the fact that it is a short-term rental impacts I believe it gets into whether it it impacts financing all of that great form great addition I'm happy that they're including that as part of this another one that they're adding is a new personal property addendum also a really needed thing personal property is defined in a lot of different ways right so for instance the the most common form of personal property is Furniture and clothing things things of that nature or if you have like games or TVs all of that kind of stuff this personal property addendum outlines all of the standard personal property items that could be questionable but that we're just going to assume unless the seller clarifies at the bottom of it we're going to assume that all of these things convey with the home so this includes things like sump pumps garage door openers generators invisible fencing smart car chargers all of these types of things so that that's going to be a great addendum as well to make sure that everyone is on the same page with what is conveying and what isn't conveying I'm excited for that one they are changing the the sellers and buyers agreement to occupy prior to closing or sorry the buyer agreement to occupy prior to closing in other words if a buyer wants to move into a house before closing that is possible and the seller's agreement to occupy after closing if the seller wants to remain in the house after after closing happens the the primary changes there's a lot of lingo that's that's changing in these that needed to be changed a long time ago I've actually complained about this in other episodes of this podcast they finally did it but the primary thing that they're changing is they're making these just 7-Day agreements and if buyers or sellers need to occupy prior to or after closing for greater than seven days then basically they need to get an attorney involved to draft up the language for that so so that's that's an interesting change I'm kind of non-committal on that I think that's going to create a little bit of a headache but I understand why they're doing it it it makes sense once you start to get past 7 days it can start impacting it can there can start to be financing concerns there can start to be you know concerns with whether this is a landlord tenant agreement which these forms specifically are trying to avoid and so yeah I totally get why they're doing that it's just going to create a little bit more of a headache if we have you know a seller that wants to occupy post closing for a month we're going to have to get attorneys to draft up that lingo now and the only other major change currently that I'm aware of is the buyer agency contract this is the agreement between a buyer's agent and their buyer client the way it appears to me they are changing it there used to be multiple options for how the buyer agent get gets compensated and they have reduced the number of options greatly they're used to be this option where the the buyer agent could simply accept whatever amount that they were getting paid out of the transaction in other words if the listing brokerage was offering $100 then the buyer's agent only got paid $100 well the way I understand this it wasn't clearly stated on here but the way I understand it that is going away and now all buyers agents are going to have to have an agreement with their buyer clients on a either a percentage or a flat fee for what they are getting compensated for what they're doing and if the listing brokerage isn't offering that much then it will be up to the buyer client to compensate the buyer's agent for whatever the Gap is between that amount so let's say the buyer agent and this is standard for me standard for me that I I request a a minimum of 3% and that's standard for the vast majority of agents in this market so if the seller isn't offering a full 3% then my buyer client has to has to to pay the shortfall now what we do in these instances is we try to get the seller to pay closing costs to cover that and usually we're able to do that in this market now the market you know during the crazy pandemic Market it was harder to do that in this market it's gotten a little bit easier we can get we can get the seller usually to agree to that type of thing and it ends up basically being a non-issue but in in the future all of the agents mainly newer agents that have just been accepting whatever the listing office the listing brokerage was giving to them they're going to have to draw a line in the sand what their minimum amount is what they feel like they're worth at the end of the day right what their service is worth for me my service has consistently in my opinion been worth 3% my clients agree with that I don't I can't think that of a time that I've ever lost a client over that that aspect of it I've had some some instances where investor clients don't want to commit to one single realtor they want to be able to to potentially contact and talk to multiple Realtors I understand that I can't think of any time that I've had one that bed at compensating me that minimum 3% CU that's that's my paycheck at the end of the day that's what I that's what I feed my family with as it were um so that's going to it's going to be interesting to see if that impacts anything here's what I think that might impact there is a certain Builder which I won't name that only offers $2,500 to Buyer Agents which is a bit absurd because often times with this particular Builder the Buyer Agents end up having to do a lot more work but the the the long story short of it is are they going to now lose business in a time where it's really hard for Builders right now over half of active listings in mLs are new construction is that going to then impact their compensation model for how they decide to compensate cooperating Brokers and buyers agents I think it might I think that there's a good chance it might because if they're only offering $2500 it's a $300,000 house 3% of 300,000 is 9,000 now the buyer is ex is expected to bring an additional what $6,500 to closing that's a a a burden for a lot of buyers that's something that they're not expecting and not wanting to have to do so that's going to have ripples um and and I should say that's just one Builder all of pretty much all the other builders that I'm seeing are offering at least 3% to Buyer Agents right now I've seen some instances where they're offering 5% plus a bonus and that's something else that's being addressed in here is that any bonuses that are being offered to Buyer Agents that there doesn't need to be any any approval by the buyer or anything like that for that to to convey that was something that my former my former broker fritzy God Rest her soul she that was something that brought a lot of angst to her was that when there were bonuses being offered there there was just Le there was a lot of legal gray area there when when agents were were getting bonuses she was really good with that with those technical legal things and and so they're finally coming around to addressing that in here so that's a little bit in the weeds but I know that some of my listeners like to get into the Weeds on some of that stuff so I hope that was helpful to some of you let me know if you have any questions on any of that you know how to contact me it's in the contact information if you don't for whatever reason and please as always if you like this show Please Subscribe leave a rating leave a review and we will talk again again next time [Music]