Newbie Question on Offers, Earnest, etc.

10 Replies

I am still not 100% clear on the offer and inspection process and was hoping to get some clarification. I suppose the easiest way to have any misinformation addressed would be to lay out what I think the process is:

  1. Property XYZ is listed on the MLS
  2. I am interested in the property, so I go ahead and contact the listing agent and make an offer, stating that the offer is contingent upon inspection and attorney review
  3. Once a price is reached, I get the standard 3-7 days (whatever is agreed upon) to do my inspection, etc. This blocks other people from making offers and puts me in the driver's seat to getting the property.
  4. If my inspection turns up something catastrophic (eg termites, mold, etc), then I am able to rescind my offer and get 100% of my earnest money

I guess my biggest concerns are:

  • When is my earnest money at risk? My understanding is only when I, the buyer, go beyond my permitted window to conduct an inspection and try to walk away from the deal? Or if the inspection is done and nothing major is discovered to justify walking away?
  • I see a lot of terms like "as-is". Is that synonymous to no inspection allowed? Is the buyer always granted the right to inspection (unless otherwise explicitly stated) for all MLS listings (foreclosures included)? I know Sheriff Sales are an exception, but wasn't sure about other bank-owned stuff.

Howdy

Your thought process seems correct.
Everything is Negotiable whether it's bank owned or not, even if it states "as is" in the advertising you should still ask for an inspection/due diligence period. Either the seller will accept this or they won't and if your new at this then you definitely want to have an inspection/due diligence period.

If you find something you don't like during your inspection period then as long as you send notice of cancellation prior to your inspection deadline then you should be good to go. Take it one step further and ask for a confirmation of cancellation.

If you have more specific questions feel free to contact me.
Good Luck!

Originally posted by @Alex Huang :

I am still not 100% clear on the offer and inspection process and was hoping to get some clarification. I suppose the easiest way to have any misinformation addressed would be to lay out what I think the process is:

  1. Property XYZ is listed on the MLS
  2. I am interested in the property, so I go ahead and contact the listing agent and make an offer, stating that the offer is contingent upon inspection and attorney review
  3. Once a price is reached, I get the standard 3-7 days (whatever is agreed upon) to do my inspection, etc. This blocks other people from making offers and puts me in the driver's seat to getting the property.
  4. If my inspection turns up something catastrophic (eg termites, mold, etc), then I am able to rescind my offer and get 100% of my earnest money

I guess my biggest concerns are:

  • When is my earnest money at risk? My understanding is only when I, the buyer, go beyond my permitted window to conduct an inspection and try to walk away from the deal? Or if the inspection is done and nothing major is discovered to justify walking away?
  • I see a lot of terms like "as-is". Is that synonymous to no inspection allowed? Is the buyer always granted the right to inspection (unless otherwise explicitly stated) for all MLS listings (foreclosures included)? I know Sheriff Sales are an exception, but wasn't sure about other bank-owned stuff.

 You pretty much have it right.

As for the EMD you said "Or if the inspection is done and nothing major is discovered to justify walking away?" That's not quite right. If the seller agrees to fix whatever you ask for (even if it's major) then you are still in the contract no matter how "major" it is. UNLESS you have terms otherwise. Our contract in MD has a box in the inspection addendum that allows the buyer to get out for simply not liking the inspection. They can walk away without requesting repairs. We almost never use it though, because sellers won't usually agree to it, but it's there.

Try to get the lowest deposit down like $1K. You can always get your inspection regardless of property type. It is just a question if someone will fix it or not. I actually will change retail deals to as-is to negotiate and provide a difference between myself and other buyers to the seller. You will get comfortable not doing an inspection and saving the money, obviously depending upon the quality of home you buy.

Happy to help explain more, send me a message if you have more questions.

Originally posted by @Paul Camuto :

Try to get the lowest deposit down like $1K. You can always get your inspection regardless of property type. It is just a question if someone will fix it or not. I actually will change retail deals to as-is to negotiate and provide a difference between myself and other buyers to the seller. You will get comfortable not doing an inspection and saving the money, obviously depending upon the quality of home you buy.

Happy to help explain more, send me a message if you have more questions.

 Thanks.

So if I find some things I want fixed, and the seller refuses, then I am entitled to walk and get my earnest money back right?

Hi @Alex Huang ,

Each specific area and contract is going to have different wording so it is important to see how yours is written out. Otherwise you can find you lose EMD by failing to perform an action.

EXAMPLE: In my area if you do an inspection you then have to provide the relevant pages of the report within X days. If you cannot agree within Y days either side may kill the contract and buyer just gets EMD back. Sounds simple right? Well when a buyer goes in and just "Changes their mind" or "it's just too much work" and does not want to buy it, they often decide to just kill it then, they are doing it wrong and could lose their EMD. It has been fought for and won by the seller because the buyer never presented the relevant reports on what they wanted repaired.

The correct way to do it (in my area with our standard contracts) is to provide the report and say fix everything on here. Oh, we can't come to an agreement lets kill it and let me get my EMD. But that is my area yours could be different. RE is local enough that you may want to discuss it with a person in your area who is familiar with your contracts.

Good Luck!

Hi Alex,

It might be beneficial to work with a buyers agent who is familiar with you local market. In most cases you aren't paying anything because if you go to the listing agent they just get double the commission. When you write an offer with an inspection contingency on an as is your basically just checking to make sure there isn't anything catastrophic. If you find something they won't fix it but you can back out and get your earnest money back. That being said I have seen many times sellers fix something rather then losing out on your offer even on "as is" houses. The timeline on all of these things are put into your offer when you write it and it's important to keep up on the dates. 

Yes 
Originally posted by @Alex Huang :
Originally posted by @Paul Camuto:

Try to get the lowest deposit down like $1K. You can always get your inspection regardless of property type. It is just a question if someone will fix it or not. I actually will change retail deals to as-is to negotiate and provide a difference between myself and other buyers to the seller. You will get comfortable not doing an inspection and saving the money, obviously depending upon the quality of home you buy.

Happy to help explain more, send me a message if you have more questions.

 Thanks.

So if I find some things I want fixed, and the seller refuses, then I am entitled to walk and get my earnest money back right?

 Yes just make sure the contract has the language.

Originally posted by @Ben Graves :

Hi Alex,

It might be beneficial to work with a buyers agent who is familiar with you local market. In most cases you aren't paying anything because if you go to the listing agent they just get double the commission. When you write an offer with an inspection contingency on an as is your basically just checking to make sure there isn't anything catastrophic. If you find something they won't fix it but you can back out and get your earnest money back. That being said I have seen many times sellers fix something rather then losing out on your offer even on "as is" houses. The timeline on all of these things are put into your offer when you write it and it's important to keep up on the dates. 

Thanks Ben and every one else.

I think this is the best piece of advice for me. I have been employing the tactic of using the listing agent for the offers I've made thus far (for the reasons of double commission), but I would probably be better suited to use an agent myself to ask these questions and ensure I'm protected.

Alex,

@Ben Graves is right. Go to an agent who will look out for your interests with regard to the contract, earnest money, local practices and what not.  Importantly, rely on this person only for the technicalities of completing the deal! They are not an investor, even if they say they are, even if they say they have rental property.  They cannot help you to analyze the deal according to your predetermined criteria.  Don't let them try, you'll end up overspending on a poor risk so they can get a commission OR you won't buy the best bargain in town because they don't like it.  Trust only your own judgment after reviewing the deal with your mentor.

A good agent will do a lot of work for you, treat them right and pay them well.  Then, make the investment decisions yourself.

I hope this helps! Holler if you need me.

Best regards,

Mark

P.S. The rest of the comments here are also correct.  EVERYTHING IS NEGOTIABLE. Don't forget that!  It's not uncommon to offer only $100 earnest money or even $10.  The real consideration is a promise for a promise.  That's basic contract law.  Pay only what you are comfortable with and put as many conditions as you like.  Good luck!

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