If your real estate agent hasn't already said this to you, she probably will: 'Make your offer as clean as you can.'
A clean offer is one with as few terms or contingencies as possible. Terms are the conditions under which the buyer proposes buying a house ' at a certain price, in a certain condition, and with certain time-lines to be observed. Contingencies are statements that define and amplify those terms and give the buyer cause to void the offer if they are not met. For example, inspection contingencies allow the buyer to determine if the house is in a condition that meets his terms. We will use the two terms interchangeably here.
From a seller's prospective, the ideal offer is probably one that promises that the buyer will purchase the house at the asking price, require no inspections, is not concerned about a mortgage, doesn't want any personal property that the buyer was not prepared to leave behind, and is prepared to complete the transaction whenever the seller wishes. For good measure, it includes an earnest money check so large no sane person would ever walk away from it.
A real estate agent with a buyer's best interests at heart would never suggest an offer that was that clean, but there are terms that can kill the best priced offer. There are also strategies for modifying them that can earn even a poor offer a second look.
Most real estate offer forms contain some 'standard' contingencies or terms. These are terms that are so common, reasonable, and sensible that local Boards of Realtors have written them into the offering contract and most attorneys, if consulted by a buyer, would insist on including if they were not in the forms.
These usually include a home or structural inspection, tests for termites and other wood boring pests, Radon, lead paint, and, if relevant, tests of the septic system and drinking (well) water supply. If any of these inspections or tests uncover 'substantial' problems, the buyer can usually opt out of the purchase contract.
This term sets forth a period of time for the buyer to complete paperwork and receive final approval for a mortgage. No mortgage, under normal circumstances, probably means no sale, but a mortgage contingency clause will let a buyer escape from the contract without losing his escrow deposit.
These include dates and terms for signing a Purchase and Sales Agreement (this second step following the offer is not a factor in some states), amounts of money to be escrowed to enforce performance, and date and place for delivery of the deed.
These terms protect the buyer from any problems arising from the specific legal nature of condos, including the right to review the condo association's bylaws, budget, and meeting minutes. These were discussed at length in two articles published in this space on December 13, 2004.
These can include almost anything that the buyer might think up. One common contingency would allow the buyer to sell his existing home before closing on the prospective purchase. But there are as many other miscellaneous contingencies as there are creative or nervous buyers. For example, a buyer could specify that a rental property be delivered free of tenants, or that he be able to review leases before the closing. Buyers frequently include contingencies asking that certain items of personal property such as a swing set, refrigerator, or special lighting fixture that the seller had specifically excluded on the listing sheet be included in the sale.
The first three categories (four if the property is a condo) are important safeguards for the buyer and, under normal circumstances, should not be casually surrendered. But, these days, what is normal? In markets where buyers are in fierce competition for houses in certain price ranges or neighborhoods, they might need to think about eliminating or moderating some contingencies. Sellers do not want to lose marketing time and momentum if the offer they selected (particularly if there were other offers) falls apart a week or a month later because the buyer did not like the home inspection or failed to obtain a mortgage commitment. In such cases, sellers may not only be looking for the cleanest offer but may actually be in a position to demand one.
Of course, a seller cannot force a buyer to proceed with a transaction against his will, particularly if there is no bank willing to loan money for the purchase. But any money escrowed to ensure performance is at risk unless indemnified by a contingency and non-performing buyers could face other remedies at law.
But buyers can protect themselves while still producing a clean or at least cleaner than average offer.
No buyer wants to enter into what may be the largest financial transaction of his life only to find that he has purchased more headache than house. On the other hand, sellers often fear, and not without basis, that a buyer will use inspections to renegotiate the purchase price, demanding a reduction in or rebate on the purchase price for every nick in the paint or frayed window sash cord. A seller with a choice may pick a lower offer without inspection contingencies over a standard offer at a higher price.
One way a buyer can allay seller fears is to limit the scope of inspection contingencies. A buyer can decide what level of repair costs he is willing to accept and then memorialize this in the offer. A buyer could state that the contingency will only apply if repair of a single item on the inspection report is projected to cost more than $XX, and/or if repairs in the aggregate exceed $XX Alternatively, the contingency might be written so as not to apply to cosmetic defects but only to structural concerns and major items such as plumbing, heating, and electrical systems, again with a price limitation. Spell out all limits as specifically as possible...
A buyer who is planning on massive renovations may not be concerned about old wiring or faulty plumbing. In that case a buyer might consider waiving a home inspection entirely or limiting it to items not budgeted for replacement. I once had a buyer who planned to immediately demolish a very aged and worn home on a lovely lot but insisted on a termite inspection. It was a cultural issue and he would not budge. He also did not get the house... or any of the next five 'tear downs' he offered to buy.
An extreme method of cleaning up an offer was wide-spread in the super-heated Boston home market a few years ago. A buyer, preparing to make an offer, would complete a home inspection in advance. This was often done without the seller's knowledge which is troubling, and cost a buyer $400 or more every time he employed the tactic. But in a competitive market, and with the seller's permission, it is an excellent way to clean up an offer while allaying fears about the home's underlying condition
There are some tests and inspections that cannot reasonably be done in advance and others that local laws or customs make irrelevant to a clean offer. For example, given both the access requirements and life style accommodations required for Radon testing, it would be difficult to ask a seller's permission to do a pre-offer test. If a Radon contingency might be a deal killer, speak with a remediation specialist in your area to assess the odds of having a problem and to get a handle on what remediation might cost.
If a house was constructed after 1978, there is no need for a lead paint test, but buyers of older homes are entitled to a ten day period in which to conduct one. This period can be shortened or extended by mutual consent of the buyer and seller. The official EPA website states that a buyer can waive this inspection right, but this may not be the case in all states. At press time we were awaiting clarification from EPA about this, and hopefully we can provide a definitive answer in the second part of this article.
Other inspections may be the seller's responsibility in some states and the buyer has no part of the process. Termite certifications by the seller are required in some southern states and Massachusetts requires a guarantee that septic and cesspool systems are operative and non-polluting. I suppose that a buyer, seeking a competitive edge, could offer to shoulder these responsibilities.
There are ways of dealing with the other three categories of contingencies in order to produce a clean(er) offer. We will discuss those in Part Two of this article.