Inspection before P&S?

Question

Wondering if other people do inspection and request financials in the time between accepted offer and signing the P&S?  That is how I usually do it but I just checked a book and it says to do all of that in due dilligence period after p&s but before closing.

Sam Tang · Answer

I'm currently putting in a offer to purchase with an inspection contingency (I think it was 7 or 10 days) and condo docs contingency. You could be required to put down a good faith deposit during the time prior to the p&s being signed if accepted by the seller.

as far as I know this is how its done in MA

Ann Bellamy · Answer

Jose Enage, not, it's not called an LOI, it's a Massachusetts specific process using an "Offer to Purchase" and then a standard P&S without a contingency for due diligence.

Mike LaCava, I'm engaging you in this, if you would be so kind.  Can you please review the above and comment for Daniel?

Daniel H. · Answer

That is for most states correct, but I believe it is different in MA.

Jose Enage · Answer

Daniel, please confirm if I understand this correctly. I think you submitted an LOI (letter of intent) you got it accepted and have a stipulation probably in your LOI that states that you "have x days to formalize the LOI with a Purchase of Sale contract. And you are using the x days to conduct your due diligence? Is this correct. If so, Jon is right, you do not want to spend any time or money until the contract is signed. All due diligence is done typically AFTER contract is agreed to formally. Otherwise you are taking a risk.

Daniel H. · Answer

Thanks Ann.

It is not my first transaction but since it is something that I do only once every year or so, I forget the details.  Last time I used an agent and they guided me through it so I was guided through it.  After doing it by myself I will probably have a better grasp of it. So Ann, basically due dilligence is done between offer acceptance and p&s signing?  Time after p&s is just time for bank to do closing?

I am doing inspection this week but seller seems to not want to give up the financials. Claims she doesn't have them.  I will ask my lawyer about this tomorrow.

I am planning on attending one of the meetings one of these days but it is hard with my work schedule.

Thanks for the reply.

Ann Bellamy · Answer

Jon Holdman, Bill Gulley, Joe Hayden,

Daniel H. is correct, in MA you submit a written offer to purchase, it's accepted, then subsequently execute a P&S.  Wierd, I know.  I'm so used to buying in NH, that when I'm having a MA lending conversation, I always use the wrong terminology because I forget about the different process.

Inspections are typically done between the two documents, because the MA standard form P&S specifies that unless specified in writing, all inspection contingencies have been met.  Financials from the seller should probably have been provided before making the offer but if that wasn't the case, you should get them before P&S in MA, because you don't have much room for negotiation once the P&S is signed.

I'm not a real estate broker, so if a MA real estate broker or attorney wants to jump in and correct me, I'm all ears.

Daniel, it would appear that this is your first transaction, since these are process-related questions.  Congratulations on your first deal.  However,  I would suggest that you find an investor friendly real estate agent (we have tons of them in our network).  I understand you don't like working with agents, but for a first transaction, it would help you go through this process.  Or hire a MA real estate attorney.   Or network at one of our local events with other MA investors who can help you.  There are several MA investors here in BP, maybe one will chime in.  I lend in MA, but don't buy in MA, so the details of the inspection process is not usually something I have to pay attention to.

Daniel H. · Answer

So when you guys submit an offer, you just leave a week or so before P&S for lawyers to draft the document?  Then once P&S is signed, you do inspections, request financials, etc?  After p&s is signed, you can still request concessions?

What is standard procedure here?

Joe Hayden · Answer

I agree with Jon...  Not understanding exactly what you are doing, and it may be state-specific...

One reason that you want to do inspections after accepting terms is because you then can have leverage against the seller to make repairs (depending on how the contract was written).

Depending on how quickly you have to act, starting with a letter of intent, then doing certain due diligence prior to submitting a formal offer, is possible.  If you are in a tight or competitive negotiating situation, you may not have time for that formality and need to have a P&S contract available with adequate protection for due diligence.

Daniel H. · Answer

Here in MA you submit the offer or letter of intent to purchase, then the buyer submits counteroffer or accepts.  Then you have time before the P&S is signed.  Not sure whether to start inspection, gathering data before the P&S.  Otherwise I am not so sure why you need much time between accepted offer and p&s.  Is it just time for the lawyer to draft the documents?  I am doing inspection this Wed before P&s.

I am pretty much on my own in this business.  Don't like using realtors, no family in the business and friends aren't doing it either.  Everything I learn through here or books or experience.  Would like to do things the best way and also don't want to look stupid to the sellers.

Bill Gulley · Answer

You need to request financials right after the PSA if you didn't get them to base your offer on! You also need estoppel letters to tenants to verify the terms of the lease and rents.

You should do financials prior to make the offer if there is time, otherwise make the offer subject to those reviews being acceptable.

As a seller, you want to know the buyer's ability to buy before accepting an offer. :)