Real Estate's "Miranda Warning"

Why Buyers Shouldn't Talk Directly to Listing Agents

The person in custody must, prior to interrogation, be clearly informed that he or she has the right to remain silent, and that anything the person says will be used against that person in court.

--U.S. Supreme Court; Miranda v. Arizona decision (1966)

As a listing agent, I strongly discourage my selling clients from talking to the Buyer's agent, beyond exchanging social niceties.

In fact, direct contact between a represented client and the other side's agent is inappropriate; all communication is supposed to be between the two agents.

In practice, however, the Buyer's agent and Seller can cross paths when the former is previewing (looking at a home without their client), and the Seller is home.

"Hot Summer we're having" is certainly harmless enough.

"How many showings have you had, and what have people been saying?" isn't.

Seller Blunders

Perhaps the most damning -- and costly -- blunder I've heard of involved a Seller who let slip that their Contingency had been called, and that they'd lose their dream home unless they found a Buyer for theirs in the next 48 hours.

According to the agent who related the story, the Buyer's offer just dropped $20k.

Even if Sellers don't say anything compromising, sometimes, just their "body English" (facial expressions, general demeanor, etc.) betrays them. That's especially so if they're discouraged or impatient about how things are going.

Call it the real estate "Miranda Warning": anything you say (or telegraph) can and will be used against you.

Buyer Blunders

The same holds true for Buyers talking directly to Listing agents.

Case in point:

I recently met a Buyer, their agent, and the Buyer's contractor at a home I was listing to discuss repairs they were requesting of the Seller, including a wiring issue in the Kitchen.

Since the wiring was inaccessible and the Buyer insisted that the home required extensive remodeling (hence their low offer), I suggested it would be much cheaper to fix the wiring once the Kitchen walls were opened up.

At that point, the Buyer interjected, "Oh, no -- we love the Kitchen just the way it is!"

Oops.

Goodbye, negotiating leverage.

Confused by Contingencies

Contingencies: 'Small c' or 'Capital C?'

One of the most confusing things about residential real estate -- and there are plenty -- is exactly what it means for an offer to be "contingent."

As Realtors use the term, a "Contingent" offer is one that's contingent upon the would-be Buyer selling their current home, which is what Realtors call "the backup home."

So when is a Contingent offer no longer contingent?

It's not what you might guess, i.e., when the Seller's home has closed and the Seller has been paid.

Rather, by convention, it's much earlier -- namely, when the Buyer's Inspection Contingency has been removed.

Even though a deal at that point is still far from done -- the Buyer's financing is still tentative, the appraisal hasn't been done, etc. -- the presumption is that the odds are good.

"Small c" Contingencies

Adding to the confusion associated with Contingent offers is all the other contingencies (with a small "c") than can be built into an offer.

In theory, a Purchase Agreement can be made contingent on any event happening (or not).

If the Buyer and Seller wanted to make the Purchase Agreement contingent on the Seller leaving a bottle of champagne in the fridge for them, they could (and at the right price, I'd recommend my Seller do it!).

It's also the case that, from the Lender's perspective, there are always contingencies right up until the time the closing documents are signed.

Like, the Buyer keeps their job, hasn't wrecked their credit (say, by filing for bankruptcy), etc.

In practice, the two big contingencies are the ones involving the Buyer's inspection and financing.

The key to keeping contingencies straight is distinguishing between Contingent and Non-Contingent offers on the one hand, and offers that are subject to various contingencies -- at least other than the Buyer selling their current home -- on the other.

For advanced beginners: how the contingency in Contingent offers is removed.