By Ron Wynn
The biggest concern from an owner when selling is knowing that the sales contract is tight. A good real estate agent knows exactly what to do to tighten up your real estate contract and to be sure you are in a solid escrow. You may have heard the term “falling out of escrow.” A good realtor should have a very good track record with few properties falling out of escrow.
It is not possible to never have a property fall out of escrow. Believe it or not, although most people think the reason for a property falling out of escrow is because the buyer failed to qualify for a loan, that is not true.
The major reason properties fall out of escrow is buyer’s remorse.
Buyer’s remorse is also known as the buyer getting “cold feet.” This is more of an emotional thing and is very difficult to control. Things come up. Family members can taint the purchase, buyers can have health or financial reasons or become panicky during the course of escrow. When things happen, a good realtor will turn to skillfully listening and understanding and being compassionate and will not turn to using threats and guilt. Sometimes it works and sometimes it does not. These are things that are generally not in our control. What is in our control is writing up a good real estate contract.
A good real estate agent not only has the ability to talk a buyer through when there are drama and emotional conflict, but also will draft a flawless contract leaving no ambiguity. Although a seller would love to see a contract that has no contingencies and is written with all cash, that is not always possible. When an all cash, no contingency offer is not available the seller will look for minimum contingencies and short time periods.
The primary contingencies in most real estate contracts are as follows:
1) Inspection and Due Diligence – An inspection and due diligence contingency allow the buyer to check the subject property including the condition and see a lot survey. It also allows the buyer to do any other checks regarding environmental or neighborhood issues that may affect the value or the desirability of the property. A good realtor will walk the buyer through how to make these investigations including; an environmental inspection that may detect such things as asbestos, or radon, a chimney inspection, a sewer line inspection, and even an inspection to check if there are offenders with criminal records near the subject property.
A reasonable period for inspections can be anywhere from 3 days to as long as 17 days. A reasonable time period is about 10 days in today’s market. Extensions can sometimes be negotiated if needed. (If it is a commercial property or leased property the buyer will also have time to investigate leases and estoppel agreements).
2) Title Report – This is a very important contingency. A buyer has the opportunity to investigate clear and legal title. Easements, conditions of adverse possession, potential survey discrepancies, encroachments, reservations, covenants, conditions and restrictions. Often times a buyer will consult with a lawyer to discuss title matters affecting the property.
3) Loan and Appraisal – If a buyer is obtaining a loan, it might be subject to an appraisal. To protect the buyer, the buyer will want not only a loan contingency but an appraisal contingency. A savvy seller, however, will want to see that the buyer has a preapproval letter in advance. The preapproval letter, however, will only guarantee to some degree the ability of the buyer to qualify but will not guarantee that the property qualifies from an appraisal standpoint.
The typical time period for a loan and appraisal contingency is 17 days, however, this can be negotiated between the buyer and seller depending on how busy the banks are and what their typical processing time periods have been. Insist upon that the buyer applies for the loan and appraisal immediately (within 3 days) because nothing will happen until the application and application fee are made.
Generally, these are the three main contingencies in a contract but there could be many others including a subject to the sale of another property or the subject to the closing of an escrow. Be very careful to know your contingencies and be very careful there are specific and reasonable time periods. For more information about contingencies consult your realtor and understand that time periods are vitally important. An escrow that has long time periods or no time periods specified could go on forever and become an “out of control” nightmare.
Ron Wynn is an agent with Coldwell Banker at 1531 Montana Ave.
