Is my purchase agreement contingency okay?

4 Replies

Hey all,

I have three properties I am about to sign purchase agreements for, and it is an investor to investor sale.

Everything about the deal gives me a warm and fuzzy, less one condition. But it may very well be the standard. This is my first set of investment properties so I am not sure:

The PA has a contingency of AS IS condition for the houses. Below that at my request the seller has included the line "Inspection for informational purposes only" and below that "Only serious structural issues (over 5,000 dollars) may be grounds for terminating or renegotiating this contract"

I met the seller, flew to the state the property is in and saw the properties my self, nothing seemed wrecked about them. He has done some cosmetic and mechanical rehab on the properties already, and the seller has an outstanding reputation in the BP community and investor community. 

Should I be worried about this? Should I have the 5000 dollar issues clause lowered to say 2000 or 3000 to protect myself? Or is this PA format standard for investor to investor deals?

Thanks guys!

Tyler

@Tyler Haskell

I have never personally seen anyone write contingencies like this before but that doesnt mean it is a bad thing.  If the person has a good reputation here and after viewing the homes yourself and you thought they were fine, then I would say move forward.  

A contract contingency should be fairly simple, " buyer has X amount of time to conduct a home inspection and can cancel anytime within that stated due diligence period ".

It sounds like your locked in and can only cancel or renegotiate if there are major structural issues.

Good luck

Curt Davis, Real Estate Agent in TN (#00321765)
605-310-7929

Well, don't know about the reputation angle on BP, I'm not selling it to you!

To me, that says the seller can be aware of a $4,500 problem, are their repairs covering up anything?

If they made recent repairs, being in the business of flipping or RE, they are responsible for what they did, the work they had done, that will most likely be by statute and won't be limited to their cutting off repairs at some dollar amount, being undisclosed. If there is an issue and they disclose the matter and say it is to be sold with that not exceeding 5K, assume you're paying 5K more.

Is this a cash offer? If so, of course the inspection is for informational purposes, that's silly, the 5K limit is a concern, that should be left to your discretion, I'd not go there, I want it inspected any significant matter gives me the right to drop the deal.

If it isn't a cash offer and you are financing, the lender's requirements will trump anything that seller adds, if you don't have the funds to repair and the reserves they require, they can require it repaired of they pull the loan rug out and you're not at fault.

Don't assume anything about contributions here on BP, being a great person on the internet, having a "good" reputation here is no excuse not to do your due diligence, just because someone may be loved and admired doesn't mean they know what they are doing, in fact, might be a good reason to look closer. When you deal with a lawyer or minister, extend your right hand to shake hands, cover your wallet with your left. LOL (No offense to lawyers or ministers, I think they are use to that joke) :)   

@Bill [email protected] Davis

Thanks for the input. I feel that I have done solid due diligence on the property, and as I said everything appeared fine when I looked at them.  

The properties will be financed, and the seller normally does deals just AS IS for the most part. He added the additional clause at my request because I thought it may be a good idea in case the inspection yielded something major. 

Like you guys said in different words:

Either the properties have 4500 dollar hidden problems, or everything is fine and the clause in there just because I asked.

Thanks again!

Originally posted by @Tyler Haskell :

Hey all,

I have three properties I am about to sign purchase agreements for, and it is an investor to investor sale.

For clarification- You haven't signed the agreement yet?  

The PA has a contingency of AS IS condition for the houses. Below that at my request the seller has included the line "Inspection for informational purposes only" and below that "Only serious structural issues (over 5,000 dollars) may be grounds for terminating or renegotiating this contract"

Standard language we use for AS IS " Buyer will have X number of days to complete an inspection of the property & may terminate for any reason during the inspection period"   

Should I be worried about this? Should I have the 5000 dollar issues clause lowered to say 2000 or 3000 to protect myself? Or is this PA format standard for investor to investor deals?

There's no such thing as a PA format standard for investor to investor deals.  Every deal is different and negotiable.

General comment:  You asked him to put in the $5K structural issues clause.  If he's put the clause in the contract then get a professional over to the property to assess your risk. After which you can make a business decision on whether or not you should proceed.  

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