“Time Is Of The Essence” When It Comes To Contracts
As real estate professionals, we know that the adage “time is of the essence” especially applies to the contract process. If the contract names a deadline, you must meet it — you’ll risk legal issues or an incomplete deal if you tarry. And with the market’s current inventory shortage, the contract process can move swiftly. Getting an offer in and accepted within the specified timeframe presents a challenge. Offers are arriving in multiples with escalating prices — with some “In Its Current Condition” addenda attached. But don’t panic!
It’s your job to stay alert for red flags to help your clients avoid spending money for inspections and appraisals if the buyer doesn’t want to accept the home as is. Insurance availability is growing into a larger issue, and it's recommended to check the contract for that no later than inspection time.
So where can you scope out potential concerns? The Seller’s Disclosure! In the Seller's Disclosure Addendum, look for common issues like the roof’s age, type of wiring, prior insurance claims, among many other issues:
- Insurance: You don’t want the inspection, appraisal and loan stages to finish up, only to discover right before closing that you have insurability issues. If your client doesn’t have insurance, most likely their loan won’t be approved.
- Inspection: You should also examine the inspection time (which defaults to 10 days if left blank) for possible delays to completion, like holidays and lot waivers. These issues could delay the deal’s completion. In the lot waiver’s case, the buyer may complete the appraisal and inspection, but the neighbor buys the home out from under them — and the buyer is out the cost.
- Lot waivers: If there are lot waivers in place, extend your deadlines to completion — past the required delivery and acceptance times. Or, should the lot waiver be enacted, ask the seller to reimburse the buyer for any out-of-pocket expenses.
- Roof: If the roof is over 20 years old, you might ask the seller to replace it to meet the insurance requirements as part of the contract.
- Electric: If the electric is not at least a 100-amp box, or if there is the old "knob and tube" wiring, you may have another insurability issue. The buyer could ask the seller to bring the electric up to code and insurability.
- Other concerns: Look for red flags like large breaks in concrete driveways and sidewalks, limbs on the roof and other neighborhood issues before making an offer.
Before you go under contract, review all these easily visible issues on the Seller's Disclosure with the buyers so they can make an informed decision prior to contract. If there are many offers coming in, explain the caveats of making an offer with these flags, like the cost of inspections and appraisals. Buyers may decide to move forward anyway, and then won't be concerned as much if things flip due to the result of the inspections.
In the Financing section of the contract, you can ask the seller to pay for appraisal requirements. If you have an FHA or VA loan, add in an amount for aspects that may be required for the buyer to obtain the home and also for the seller to pay for these projects. Otherwise, it's "zero if left blank," and the seller has no obligation to repair; the contract becomes renegotiable.
Watch out for these small things and explain them to your buyers thoroughly. That way, your buyers can proceed with all these tidbits of assistance and knowledge.
