Hopefully you’ll have more than one offer to choose from. Even if you don’t, it’s really important that we carefully scrutinize the Buyer PRIOR to accepting their offer. We’ll review the major deal points in the purchase agreement:
- Purchase Price – Sellers are most interested in this point but it’s important to consider some of the other deal points – sometimes the highest offer isn’t the best offer when taking everything else into consideration.
- Escrow Period – typically these are 30, 45 or 60 days but they can also select a specific date. If they are offering to close in 30 days it’s good to confirm with the lender that they can meet that deadline. If the close of escrow date falls on a weekend or holiday it moves to the next business day.
- Initial Deposit – typically this is 3% of the purchase price and it must be deposited within 3 business days of acceptance. We do not advise accepting a smaller deposit – to us it shows the Buyer may not be very committed to the purchase or may not have enough money liquid.
- Loan Amount – if there is a loan, the Buyer will indicate if it’s conventional financing or not. Be aware that FHA loans carry additional costs for the Seller and are more restrictive in terms of property condition that is acceptable.
- Verification of Down Payment and Closing Costs – the contract default time gives the Buyer up to 7 days to provide verification of funds but we ALWAYS have them verify they have funds to close prior to accepting the offer. No sense in getting into escrow with a Buyer who can’t perform. Funds need to be liquid and ready to go. Be especially careful if funds are coming from overseas or part is coming as a gift from a relative. Many lenders require gift funds to be seasoned in the Buyers accounts for a period of time.
- Pre-Approval – the Buyer should provide a pre-approval (not pre-qualification) letter from a lender or mortgage broker with the offer. You want to be certain their income, credit etc. has been verified. We have never had a deal cancel because the buyer couldn’t get a loan – that’s because we carefully scrutinize the buyer before we accept their offer!
- Loan Contingency – if the Buyer is getting a loan the typical loan contingency is 17 to 21 days. If they are buying All Cash – make certain that is really their intention. It’s common that many Buyers indicate they are buying all cash in order to get acceptance on their offer but intend to get a loan. Just make it clear if they are possibly getting a loan in that situation that you will not allow them to make it a contingency of the deal.
- Appraisal Contingency – typically these contingencies are 17 days. If a Buyer is buying all cash they will at times still ask for an appraisal contingency – this is often the case when they are intending to get a loan.
- Allocation of Costs – typically the Seller pays for the Natural Hazard Report.
- Government Retrofit – typically the Seller pays for the required retrofit items which in Ladera Heights includes smoke and carbon monoxide detectors.
- Escrow and Title – it’s a good idea that the listing agent/Seller select the escrow and title company to make sure you have more control over these aspects. The competency of an escrow or title officer can make a huge difference especially in complicated deals.
- Other costs – The Seller pays for the County and City transfer taxes. The Buyer also often asks that the Seller pay for a 1 year home warranty.
- Closing and Possession – usually the Buyer gets the keys on the day of the close. In some cases, the Seller leases back the property from the Buyer for a period of time after close.
- Items Included in the Sale – all window treatments, attached fixtures and built-in appliances stay with the house unless they have been specifically excluded in the contract. Flat screen TV’s can be a bit of a gray area so it’s a good idea to clarify what you intend to leave – sometimes it’s smart to leave the mounting hardware or you’ll have a huge hole in the wall. Appliances that are not attached do not stay unless the Buyer has included them in the contract and you’ve agreed to leave them. The same goes for outdoor potted plants and patio furniture. If you really want to keep a chandelier in the dining room for example, make sure this is clearly indicated in the contracts.
- Physical Inspection Contingency – the contract gives the Buyer up to 17 days to do inspections but this is often shortened during negotiations. This contingency is usually the most difficult to get through. Buyers spend a lot of money to purchase real estate in the Los Angeles area and they tend to conduct thorough inspections (unless they aren’t well advised by their agent). Typically Buyers will have at least a general inspection and possibly a sewer inspection, a chimney inspection (if there is one) and may also bring in specialists to look at the roof, foundation, drainage, mold etc. Technically, all property is sold “AS IS” but in many cases, Buyers will make some sort of request that the Seller either repair certain things or provide a credit. Sellers should determine what is reasonable and hopefully an agreement can be reached that everyone can live with. Any reports the Seller receives during escrow must be passed on to future Buyers so it’s best to work with the current Buyer if possible. If the Buyer requests that repairs be made, it’s usually best to offer a credit or a reduction in the purchase price. It can be a hassle to make repairs and repairs can often cost more than estimated and lead to other work not anticipated. When demand for your home is high and you receive multiple offers it is often possible to avoid giving any credits or making any repairs.
- Termite Treatment – Now termite inspections are usually conducted by the Buyer and they may request that the house is treated for termites. If treatment is agreed to, it usually needs to be completed prior to the close of escrow. Most lenders will not allow a Buyer to take a credit for termite treatment and complete the work after close. If the property needs to be tented, it usually takes 2 days to complete during which time you will not have access to the house. We usually prefer that our Sellers don’t do treatment but rather provide a credit to the Buyer and let them do it after the close.
- Liquidated Damages and Arbitration of Disputes – checking these boxes is not required but it’s customary that most Buyers and Sellers do. It’s important to read the language in the contract regarding these since it limits your recourse in the event you have a dispute.
A few other points to consider: We like to do what we can to make sure anyone who has influence on the decision (such as spouse, parents etc.) have seen the property and given their blessing before the deal is accepted. You don’t want to go in and out of escrow if you can avoid it because it doesn’t look good to other Buyers and once a property has an accepted offer other potential Buyers usually won’t look at it even when it’s being marketed as looking for a backup offer.
The way contingencies work in California, the contingency remains open until the Buyer removes it in writing by signing the contingency removal form – that means a 17 day contingency isn’t up unless they remove it. If the time is up and the Buyer still has not taken the necessary action the Seller can send the Buyer a notice to perform which gives them 48 hours to remove the contingency. If after the time passes and they still have done nothing the Seller can cancel the deal. In most cases, the Buyer will get their entire 3% initial deposit back unless they have removed ALL contingencies in writing.
Until they remove ALL contingencies in writing, a Buyer can walk away from the deal and get their initial 3% deposit back. Once all contingencies are removed, if the Buyer does not purchase the property the Seller would likely get to keep the deposit. Be aware that escrow will not always close on time – often by no fault of the Buyer. Lenders are usually the biggest reason closings get delayed.
Per the contract, the property must be left in broom clean condition and all personal property including trash like old paint cans etc. must be removed (unless the Buyer has agreed to allow you to leave stuff like that). Nail holes in the walls do not have to be patched.
At times the Seller will negotiate that they leaseback the property for a period of time after the close of escrow – usually at a rate equal to the Buyer’s daily PITI. Ideally a lease back should not exceed 29 days. Longer leaseback periods require more paperwork and are not always permitted by the lenders. In both cases, the Seller becomes the tenant and the Buyer is the landlord – at times Buyers will ask for a security deposit. It’s important to have a clear understanding of what the Buyer’s expectations are during the leaseback in terms of bringing in contractors etc.
Contact Kevin at (310) 200-4916 or email email@example.com
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