The 2nd Hurdle
After the long but enjoyable journey to FIND a home, came the stress and anxiety inducing experience of submitting an offer and the agonizing wait for acceptance. Acceptance provides some much-needed joy and relief, but that was only the First Hurdle.
We are now under contract and falling deeper and deeper in love with this house. Several things need to happen to ensure the transaction proceeds smoothly and closes on time so my clients can finally move into their forever home.
The first contractual item is the Inspection Period. As the buyers, we have 7 days, as specified in our offer, to complete any and all inspections of the home. The buyer (my client) selects a certified inspector of their choice to complete a thorough inspection of the home to ensure there are no major issues, so the buyer can be fully aware of the condition of the home before committing to the purchase.
In the current market, some buyers are choosing to make the inspection a “Pass/Fail”, and some are foregoing it all together. As a Real estate professional, I would never recommend forgoing an inspection. Even on newer homes, you never know what issue my hide behind a beautiful façade. The “Pass/Fail” inspection is a useful tool, because while it still allows for the buyer to perform an inspection, it also makes the offer more attractive to the seller, because what the Pass/Fail indicates is that the buyer is simply seeking to understand the condition of the home they have agreed to purchase and will not request any repairs to be made by the seller, however if a major defect is found, they can determine that the inspection “Failed” to meet their standards, and thus be permitted to walk away from the purchase without loss.
In a more balanced market, the most common inspection period includes the inspection and negotiations based on the findings. Even new homes, that appear beautiful will have a list of items found by the inspector. There is simply no such thing as Perfection when it comes to a house. Once the buyer reviews the findings of the inspection, they can determine if there are any items that they find concerning and request that those items either be corrected or negotiate a reduction in the agreed upon sales price to compensate for the repairs they would then be taking on once they move into the home.
In our case, my clients decided to use the standard inspection clause and as expected several issues were identified by the inspector. Upon review, we were relieved that none of the items were structural or major expense items, but when you consider the entire list, it seemed reasonable to request a few of the items be repaired by the sellers prior to closing.
As a part of negotiations, we compile a list of our requests and send it as a proposal. Upon receipt of our proposal, we were informed that the sellers had also accepted a Back-up offer, and it was a cash offer. This now changes the dynamic a bit. Assuming everyone is acting honestly and ethically and not creating a back up offer as a bargaining tool – this puts a bit more pressure on the buyer to be accommodating when negotiating any future items pertaining to the contract that would allow the sellers to walk away.
To clarify what a Back-up offer is – that means that should my buyers default on any terms and/or the contract falls through for a variety of reasons, the Back-up offer is then put into place with the new buyers and their terms. The problem with a backup offer would be for the party submitting it. You can either put an expiration date on it or allow it to play out for the duration of original contract. That can be a LONG time. If you continue your home search and find another home and you decide to put an offer on the NEW home, you could potentially have 2 contracts accepted on the same day – and could be legally responsible for the terms in BOTH. Your other option would be to rescind your back-up offer, but then what if your new offer is declined? You may have just lost out on both homes.
For us for now, this is not our concern. We are only concerned with doing our part to complete the contract as we promised in our original offer. I spoke with my clients to inform them of the possibility of the back up offer and let them know 3 possible outcomes from our repair proposal.
Knowing the sellers had a backup offer, we expected 1 of 3 possible outcomes:
1. They could refuse to do any repairs. Should we balk, they know they have another offer to fall back on, and if we continued to push, they could walk away from the deal. This was our worry.
2. They could agree to some repairs, but not all, or offer to reduce the sales price based on an estimate of requested repairs. This is the typical response.
3. They could agree to all repairs, without negotiation. This is the dream, but highly unusual.
We waited nervously for the 3-day response period and heard late on day 2 that the sellers were going with option 2. They offered to make several of the requested repairs and offered other explanations for items of concern in the inspection that offered the buyers some comfort and reassurance regarding the condition of the home.
With the repair list agreed upon, an addendum was signed by all parties, and we move on to hurdle number 3 – the appraisal…. Stay tuned!