Q: I am interested in a 3-bedroom, 2-bath, single-family home. The seller is asking $90,000 cash for it. There are many other factors to be considered. The property needs a little work. My on-site inspection shows that there is at least $30,000 worth of damage that needs to be repaired. I’d like to get the property, as it has all the features I want, but not at the price the seller is asking. I want to offer $59,000 for it.
If I make an offer at this price and it’s accepted by the seller, and if I have a licensed agent inspect it and more damage is found, can I opt out of the deal in the time frame allowed?
A: There are several layers of issues involved here. First off, though, I’ll answer your ultimate question. The offer you write up (or your agent writes on your behalf) and submit to purchase the property will become the contract that sets forth both the price and the terms of your transaction.
If you are preparing an offer on a property that you know has a number of condition problems, it is your responsibility to make sure that the contract allows for you to hire professionals to fully inspect the property, get repair estimates and get any follow-up inspections recommended by specialists.
There are two ways to go about this, depending on what the standard practices are in your state.
In some states, the way it’s done is to put in place a contingency period. In many areas, contingency periods typically run from seven to 17 days, but the time frame is totally negotiable between you and the seller. It’s not unusual for it to run longer in cases where the property is obviously a major fixer.
In contingency states, the buyer puts up an earnest money deposit upfront, then conducts all her inspections, secures title insurance and does whatever other due diligence is necessary and then either must exercise her contingency (backing out of the deal and recouping her deposit money) or remove it (moving forward with the deal and, usually, increasing her deposit money), within the negotiated contingency period.
In most cases, the buyer actually retains the legal right to back out of the deal after she has removed her contingencies and increased her deposit, but she generally forfeits her deposit funds if she backs out after she has removed contingencies.
In most contingency states, a written form signed by the buyer must be submitted to the seller to either exercise or remove the contingencies, or request an extension of time; if the contingency period expires and the buyer does neither, the contract authorizes the seller to demand that the buyer either move forward or cancel the contract.
In other states, known as "objection" states, the buyer has an objection period, rather than a contingency period. In these states, a time frame for conducting inspections and obtaining estimates is also set. If the buyer does not object within that time frame — renegotiating the price or terms, requesting repairs, or backing out of the deal altogether — the deal is automatically sealed.
In both types of states, it is very common that the state’s boilerplate real estate purchase contract form will not only sketch out the details of the contingency or objection period but also require that the seller provide the buyer and her inspectors with access to the property in order to check out its condition.
The long and the short of it is, yes, with some careful attention to your contract, you should easily be able to ensure that you have the opportunity to have the property fully inspected and cancel the deal if you’re not happy with what is revealed.
However, before you even get to that point, you’ve got a massive hurdle to face in terms of even getting such a dramatically low offer accepted.
Make sure you are in consultation with a smart, reputable local real estate broker or agent, who can advise you about the property’s fair market value, and whether the list price may already reflect a discount for the needed repairs. Unless you are a construction professional, and especially if you are a first-time buyer, it can be very easy to both over- and underestimate the cost of needed repairs from the gander you take when you view the home before you make an offer.
You do run the risk of alienating the seller and making him think you are not a serious buyer if you make such a low offer. For this reason, you should definitely talk with a local real estate professional to ensure you make an appropriate offer that meets both your goals of not overpaying but still maximizing your chances of getting the home.