CONTINGENCY CLAUSES: An Advice and Discussion Post...

3 Replies

Hello Everyone,

Thank you for taking the time to read this post. 

I'm currently in the market for purchasing another investment property (multifamily) and am looking for good contingency clauses to insert into the sales contract when the time comes to pull the trigger. 

Any suggestions of ones that you've personally used? 

Of course there's always the standard Home Inspection Clause, however, I would love to add additional clauses regarding the tenants, management, etc. since there are so many angles to consider during the acquisition phase. Especially since many deals can look great at first until you start poking around...   

So what additional clauses have worked for you? Which ones didn't? 

And have you ever encountered any issues due a poorly drafted sales contract, a misleading Property Condition Disclosure, or from the tenants included with the purchase?

How did you handle these situations?

I look forward to your responses below!

"A life spent making mistakes is not only more honorable, but more useful than a life spent doing nothing."

-George Bernard Shaw

I think the Home Inspection clause is very important.  I would avoid other contingencies where possible.  

Generally it will be worth more to a seller to avoid hassles than to fulfill contingencies.  Also contracts with more contingencies are more likely to not result in a sale.

I did want to add a contingency for renting out my previous home, when I bought my current one.  My Real Estate agent talked me out of adding that contingency.  I think it was a good move.  However to get to the top of my price range, I probably would have needed the contingency.  But I think both sides were better off doing the sale at a lower price when they wanted to close.  

Hi Stephen,

Are you working with an attorney? Sounds like you may be based on your request for regarding contingency clauses. If you're working with a competent real estate attorney, they should know all of the standard contingencies in your area and what kinds of contingencies the market will bear.

If you're working with a Realtor, the contingencies should be included on the purchase agreement that they provide. Again they should be able to provide specific counsel on what contingencies will fly in your area if they're truly in tune with the multifamily market.

Remember, there are no hard and fast rules about what practices to stick with/avoid in writing offers. These things are entirely specific to your locale and where the market is.

Speaking in generalities, aside from inspection contingency, typical choices include loan/appraisal contingency as well as the estoppel certificate contingency.

Hope that helps.

@Jesse T.

I can definitely see what you mean. From the seller's perspective, more contingencies can be a huge turn off. Especially in a market where he/she would have no problem getting other offers. I suppose I was thinking more about treading carefully and less about the other parties perspective..

@William Yeh

I'm currently working with a Realtor. I used him in the past and am very comfortable with him. He does include the typical contingencies that every agent uses. However, after my last transaction I realized that there was one other clause we should have added: If any repairs are agreed upon by both parties, such repairs must be performed by a licensed contractor and seller must furnish proof of authenticity of repairs. (Something to that effect anyway). 

In the basement, I was a little leery about the exhaust vents that went from the hot water tanks into the chimney due to a slight negative pitch on the ducts, as well as some gaps in the ducting (CO issue). The seller went down there himself and muscled them into a different position and did a shotty job fixing the gaps with a universal repair adhesive - duct tape. I think my grandma could have done a better repair in her sleep. But when all was said and done, the repair was completed and there wasn't much I could say to the contrary...

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