A Ridiculously Buyer Favored Process

We work with a lot of people moving to Austin from other states. Although I’m by no means an expert in the contract processes elsewhere, I have had the opportunity to make some observations and say that the Texas real estate contract forms are much more in the favor of the buyer than other places. It’s so buyer favored that it’s really just not fair to the sellers. Why?

First of all, once you go under contract the buyer has a dozen ways to get out of the contract, and the seller has none. How is that fair?

The second thing is that the buyer can get out of the contract with almost no pain. For a home that costs, say, $300,000 you can likely get 7-10 days option period for only $150, and that’s ALL that you lose when you drop out. Let’s think about this for a minute. What other investment (stocks? bonds?) can you lock in a price, take it off the market for a week, and keep the same price and terms after you’ve had a week to just think about it? That’s exists nowhere else that I know of.

Also, within this option period, the buyer can drop out for any reason whatsoever! They don’t even have to give a reason. You can just be in a bad mood, and there’s nothing the seller can do about it. In other states, I hear that there are a lot more contingency periods specified by the contract, but with this blanket “you need no reason” drop-out-period, it really makes things simpler for the buyer.

Now perhaps this is not unique to Texas, but it’s also worth mentioning that the seller is highly incentivized to not have the buyer drop out of the contract. This makes sellers bend to buyers more often when they wouldn’t normally want to. If the buyers drop out of contract the home then carries a little more stigma, and becomes a little harder to sell. The seller also knows that Texas law requires them to disclose ANYTHING they find out about the home after inspections. This also makes it more difficult to sell the home to someone else, since they’ll be carrying more information and baggage on the next time around. That makes it more advantageous to keep the highly motivated “bird in hand” instead of letting that buyer walk away.

Beyond this option period there are many other ways to get out of a contract, which I can itemize more if we speak in person. I can’t give away ALL of my trade secrets in a blog. 🙂 Anyway, the craziest among the exit clauses is one that allows the buyer to drop out ANYTIME, even the day before closing, if the lender writes a letter saying it doesn’t satisfy their lending terms. Since the lender is almost always on the buyer’s side, there’s really few instances where they wouldn’t help you and write that letter for you. Functionally, this amounts to basically an unending option period! To me this seems SO unfair the seller, and almost unfathomable that this is a part of the contract. This clause also makes it strange that we even we negotiate a set duration for the financing period at all. We realtors go through the motion and act like the, say, 14 days the lender has to get you qualified really means something. We also go through the motions of acting like the option period is important as well. If you can drop out of the contract up to the last day though the lenders help, then what do any of these contingency periods even me. It seems to me like almost all the chips are on the side of the seller.

If all of this weren’t enough, the buyer almost never loses their earnest money here. Maybe it happens with a bad realtor, giving bad advice, but I’ve never lost my client their earnest money in my entire career. Besides all the legal ways the earnest money can be argued in your buyers favor, it’s also just a lose-lose situation for the seller because they want to get their home right back on the market. If both parties don’t sign off on the release of earnest money, then a lien could be put on the home which essentially disables the seller from being able to sell the home to someone else. If the seller wants to fight the buyer to keep this money (usually 1% percent of the purchase price), then they might forfeit months of selling opportunity (and carrying costs) while they fight. It’s so against the seller’s interest that it hardly ever happens unless emotions are really soaring.

There’s so much more that I can say on this topic, or elaborate on the items already mentioned. Give me a call anytime and I’d be happy to share what I know and experienced.