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How to Protect Yourself When Purchasing a Property “As Is”

by Lisa Phillips on June 17, 2014 · 13 comments

  
How to Protect Yourself When Purchasing a Property

When you’re new to real estate investing, there are many different variables that make submitting bids and purchasing a house a bit intimidating.

When you mix in the fact that you need to put down a deposit (earnest money deposit), this makes the process even more anxiety filled. However, two protections that are often included in all sales contract, even when the property is sold “As Is,” are the home inspection and financing contingency.

This video post will go into more detail on how these are structured for most home purchases, and how you will use them when purchasing a new rental property.

Related: The Anatomy of a Real Estate Contract

Please note: Always make sure to ask your real estate agent about these contingencies. There may be caveats to using them that might be different per city, state, and locality, and stricter rules than others on how to use contingencies to get your earnest money deposit back legally and per the terms of the contract.

With that, let’s get into it!

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{ 13 comments… read them below or add one }

Kimberly H. June 17, 2014 at 12:53 pm

Thanks for the post. A few comments, in my state, Illinois:
1. I would never ask a real estate agent about the contract terms, I would only ask an attorney. And as a real estate agent, if they answered, they would be considering practicing law and could get in trouble with the real estate board. I know an agent who sent an email saying they had not received something called out for in the contract, and he is now in hot water with the real estate board here for the unauthorized practice of law.
2. In the state of Illinois, the lawyers have totally rewritten our standard contract, which will be rolled out as version 6. It changes how the mortgage contingency and inspection contingencies work. I would make sure I understand with my lawyer how this changes things before going under contract with that version of the contract.
3. For HUD owned homes, if you are an investor, you don’t get an inspection contingency. The HUD amendment to the contract removes it. So you have to be very careful with those.

Reply

Lisa Phillips June 17, 2014 at 1:49 pm

Hi Kimberly!
1) I have no qualms regarding asking my agent about the contract, especially the bid you submit. Their job is to submit bids through to ratifying the sales contract, and have more experience than many lawyers. However, of course, its never a bad idea to talk to someone about contract law.
2) Legal counsel specific to your state can only help, especially with a lot of revisions. I have not encountered any problems in OH, VA, MD, but each location is different.
3) Thanks for the note on that! This can change for purchase to purchase (Some Wholesalers take that inspection contingency out – buyer beware). Everyone: Please make sure you inquire about the. specific nature of each purpose when submitting a bid in the process.
You’re input is always contributes to the community, thanks Kimberly!

Reply

Shaun June 19, 2014 at 3:29 pm

Small clarification on the HUD houses.
You always have an inspection available on a HUD house, even if you want to waive it.
However as an investor you can’t get your EMD back. You can cancel the contract but they aren’t giving you the money back.
But if you find something horrible you can inspect and you can walk away.

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Kimberly H. June 19, 2014 at 5:04 pm

Right, you can inspect, but the inspection contingency is removed; the sale is not contingent upon how you feel about the inspection results.

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Lisa Phillips June 20, 2014 at 9:03 am

Whenever I bid on a HUD property, I’ve always had a low Earnest Money Deposit (EMD), $500. It has been enough to hold the bid, but its not an excessive amount that I can’t walk away from if its the best business decision.

Kimberly H. June 20, 2014 at 9:17 am

Lisa- What EMD is required in your area for REO’s that are not HUD, such as Fannie Mae, as an investor paying cash?

Reply

Lisa Phillips June 20, 2014 at 9:34 am

I haven’t bid on Fannie Mae. Outside of the HUD REOs I put in bids for, my regular bank owned REOs, I usually put down $1000, more if I am competing with other investors.

Kimberly H. June 20, 2014 at 9:49 am

Good to know! I see from googling HUD requires $500 for purchases under $50000, $1000 above that and never above. Fannie Mae here gets 10% down EMD for cash offers. Huge difference!! I hadn’t known that HUD would take such little down in comparison to FNMA so the thought of walking away after a bad inspection was not an option when I was erroneously thinking EMD needed to be thousands of dollars with HUD as well!

Lisa Phillips June 22, 2014 at 10:35 am

Kimberly, does Fannie Mae waive the inspection contingency as well for investors? 10% down is a lot of dinero.

Kimberly H. June 22, 2014 at 11:25 am

No, Fannie Mae does not waive the inspection for investors. At least as of the end of 2013 when I bought my last Fannie Mae foreclosure. I get out of a FNMA contract last summer on a Fannie Mae foreclosure when we discovered asbestos tile during the inspection; they wouldn’t renegotiate the price so I was able to cancel and get my 10% EM back.

dorothy smith June 19, 2014 at 4:56 pm

We have a rental property that has tenant, clean title, and property manager taking care of the property. The rental is a single fam home with 3bed 1bath and two garages. After expenses the cash flow from this property is $423.64 per month. Yearly this is $5083.68 in cash flow. IF you would like more information please call 605 496-8518 Txt or reply in an email. This is 10% return in cash flow. Your investment would double itself in five years, and you would own the property, to keep giving you income.

Reply

Kimberly H. June 19, 2014 at 5:06 pm

fyi Dorothy, there are monitors who will remove posts like yours and possibly terminate you bigger pockets account.

Reply

Shaun June 19, 2014 at 9:24 pm

Yeah seen a lot more of this kind of spammy crap in the comments the last couple days.
Usually don’t get that here in the articles.
I can’t think of them ever pulling comments but this is just crap.

Reply

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