Buyer representation contracts in Minnesota

butterfly
Monarch butterfly

In Minnesota, we have used buyer representation contracts for a few decades. Home buyers who are working with Realtors are required to sign an agreement with their agent. The agreement outlines the Realtor’s duties and how they will be paid.

As of last week, Realtors are required to have a written agreement with people who want to tour homes we listed for sale.

Previously, we could show anyone our listings without a contract or agreement with people who want a tour.  On the plus side, this new practice may weed out the holiday housing tourists who are just curious and have no intention of buying a house.

On the other hand, home buyers hate to sign anything, making it a struggle. It is easier to sell a house if we can show it to anyone interested without paperwork. I do not plan on charging anyone anything for showing my listings but I could and the new system makes charging a fee easier.

The good news is that contracts or agreements buyers sign with Realtors do not require the signer to buy a house. You can sign an agreement with a Realtor to go house hunting but that does not obligate you to buy a house.

Do you really need a buyer’s agent?

House

We did not work with a buyer’s agent when we bought our first house. At the time we thought that we came out alright. We did not know what we did not know.

With the help of a buyer’s agent, we may have paid less for the house and if we had made an inspection contingent offer we may have been able to negotiate some repairs.  The seller’s agent wrote our offer, she was helpful but did not negotiate or work on our behalf.

It wasn’t until many years later as I started working as a real estate agent representing buyers that I realized we missed a few things when we bought the house.

Buying a second or a third house is a little easier but each house is unique and so is each seller. Rules and laws change over time. If you bought a house twenty years ago you might not be aware that laws have changed.

No, you don’t have to have a buyer’s agent representing you but most home buyers need one.

Choose an experienced agent. An inexperienced agent can be worse than no agent at all.

If you choose to go it alone consider consulting a real estate attorney.

Words matter in purchase agreements

kitchen
Stainless steel appliances – granite countertop

Remembering way back to one of my first clients. I sold their house and when we got to the closing the buyers were most upset that the sellers took the microwave with them when they moved out.

Microwave ovens that are not built-in are considered personal property. Unless the buyers ask for them specifically and unless the sellers agree to include them in the sale they can be packed up and moved away.

The buyers refused to close unless the sellers paid for a new microwave and the sellers refused to do so. At the time a new portable microwave oven cost around $100.

Anything built-in is included in the purchase of real estate in Minnesota. That included the kitchen sink, light fixtures, built-in appliances, cabinets and shelving.  If a microwave is built-in then it is included when the house is sold. Light fixtures are included as are curtain rods.

Perennial plants, bushes, and trees also run with the property and are included in the purchase.

If it is a portable model that sits on a table it is considered personal property. It can be included in the sale if specified in writing. Sellers can specify in writing items they do not want to include in the sale.

When asking for personal property the buyer should be specific.  Ask for the ______(model) microwave oven, as seen in the kitchen on this day______.

Sellers who do not wish to sell a light fixture with the house should remove it and put in a new light fixture before putting the house on the market.

Over the years I have seen more misunderstandings and disagreements over property that is worth less than $100 than over anything else. There are gray areas as to what is personal property and what isn’t. When in doubt spell it out and get signatures from both parties.

Experienced real estate agents know the difference between personal property and part of the property.

2008 all over again?

Coins, moneyLet’s not forget what happened during the housing crash. Many homeowners ended up in a negative equity position. In other words, they owed more on their houses than the houses were worth. I well remember sellers bringing money to the closing so the mortgage could be paid off.

Here we go again with loans that guarantee the borrower will have no equity from the start via zero-down mortgages.

United Wholesale Mortgage (UWM), one of America’s largest mortgage lenders, is offering zero-down mortgages, opening up home ownership to more people but revitalizing a controversial practice that carries as many risks as advantages for cash-strapped home buyers.

Here’s how it works: For first-time homebuyers making 80% of their area’s median income or less…

  • Buyers take out a mortgage for 97% of the value of the house they buy.
  • The remaining 3%, up to $15,000, is a second interest-free mortgage.

The second mortgage has to be paid back in one payment when the first mortgage is paid off or the house is sold or refinanced.

Under the program homebuyers start without any equity, so if the value of their home decreases, they would instantly owe more than the house is worth.

If a buyer has to sell quickly, they’ll still have to pay back the entire second mortgage or risk default/foreclosure.

Buyers may get stuck with a higher mortgage rate, even if the Federal Reserve starts to cut interest rates because to refinance, borrowers need to have enough cash to pay back the second mortgage.

Please think before you borrow and borrow responsibly.

Finding a house Vs. Buying a house

drawing of a house
I drew this myself

People are often confused by the fact that it is fairly easy to find a house for sale without any kind of professional help. Anyone with internet access can find houses that are on the market complete with pictures, floor plans, and room dimensions.

Once a home buyer finds a house that they are interested in what do they do next?

Make an offer?

Tour the home?

Pay to have it inspected?

Hire a title company to close the sale?

There is a process for buying real estate that is somewhat unique in each state. In Minnesota, offers have to be in writing. Most homes that are on the market are offered by a Realtor®. They know what to do and how to make an offer but they also represent the seller. They can work as a facilitator and work with both parties but one agent or one broker can not represent both buyer and seller in a transaction.

Finding a house to buy is just the first step in a process that often takes months. Most buyers will need money to buy a house so it starts with finding money for a downpayment and getting pre-approved for a mortgage by a lender.

The next step is usually looking at some houses and seeing them in person. Occasionally someone will buy a house they saw on the internet without touring it first but that is surprisingly rate.

Then the buyer will need to make an offer. The offer is on a legal contract. The buyer will need to decide how much to offer and whether or not to have an inspection and any other contingencies.

If there is an inspection the buyer has to negotiate any repairs with the seller. None of this is rocket science. It just takes patience, negotiating skills, and experience.

Finding a house for sale and buying it are two completely separate processes. Finding the house can be done on the internet. Buying the house can be done with a combination of email, text messages, phone calls, trips to the house, and in-person meetings. Do not confuse the two processes.

Plants and trees are included

it is hard for some folks to believe but some of us have sentimental attachments to plants. I have some peony bushes that came from the family farm. From there they went to a home in St. Paul and then they went to a home in Maplewood. Now they are in my yard. When we decide to sell we will ask out children if they want the plants and if they do we will remove them before the house goes on the market.

Perennial plants and trees are considered part of the property and are included when it is sold.  Most anything can be put in a purchase agreement to buy a house. If the buyer and seller agree in writing the seller can take the plants.

Things go much more smoothly when anything that the sellers do not want to included in the sale are removed from the property before the buyer sees the property.

Sometimes homeowners want to keep light fixtures and other items that are attached to the property.  Again the best way to avoid misunderstanding is to remove those times before the home goes on the market.

Technically under Minnesota law, if the homeowner plants tomatoes or other crops before they sell they are entitled to come back and harvest them.

Pink Peonie
Peonies

Over the years I have had clients who got most upset over missing hostas and in one case missing rhubarb when they went to take possession of the property.