Bad idea to put in contingencies when buying a house?

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harikaried
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Bad idea to put in contingencies when buying a house?

Post by harikaried » Wed Apr 24, 2013 11:36 pm

As a buyer, is it generally a bad idea to put in contingencies that rely on the sellers doing something? Because wouldn't it allow for the sellers just to not do the requested task while soliciting better offers? Or is it possible to structure that if this particular contingency is not met, the offer price is reduced by some amount, so even if the seller tries to get out of the task, the buyers can still make sure they get the property?

In particular, we're in a situation where we're thinking about putting in an offer for a house, but on our second visit, we noticed the heater was removed. Our pre-approval lender requires a heating system that provides ample heat to the whole house. Turns out the sellers are replacing the oil furnace and installing a gas line for a gas furnace and potentially hookups for the water heater and stove. (On a side note, it's unclear if their list price factored in the to-be-installed gas furnace or was based on the oil furnace.)

Does it make sense to put in an offer with a contingency that the heater is installed with an inspection to make sure everything is to code, etc.?

To make things more complicated, the sellers seem to enjoy working on the house (yet the house is also on the market..). One is a home construction foreman, and the existing work done appears to be of high quality. They have several projects that are nice-to-have that we could potentially include as contingencies given an offer price that incorporates those changes.

Or would it make sense to only have the heater contingency as it's required by our lender?

To further complicate things, neither the sellers or buyers are in a particular rush to move out/in of the house. The sellers would like to keep working on the house while also finding a new place to live, and as the buyers, we're in no rush to kick them out of the house as we won't move in until the end of the school year. So perhaps a longer escrow or lease-back agreement? I think it would be nice for both sides to have an offer to not worry too much more about looking for buyers/sellers, but given the contingencies, it seems like either side could back out -- in particular our concern is that potentially the sellers could find a better offer and break some contingency.

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OnFire
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Re: Bad idea to put in contingencies when buying a house?

Post by OnFire » Thu Apr 25, 2013 12:55 am

I lost out on a great house b/c I added contingencies. Don't add them. If a situation arises, deal with it as it happens. Almost everyone is in on the deal to make money, so they will cater to you in order to earn their slice of the pie...
Where are all the customers yachts? | | “The most powerful force in the Universe is compound interest.” -Albert Einstein

lwfitzge
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Re: Bad idea to put in contingencies when buying a house?

Post by lwfitzge » Thu Apr 25, 2013 5:40 am

OnFire wrote:I lost out on a great house b/c I added contingencies. Don't add them. If a situation arises, deal with it as it happens. Almost everyone is in on the deal to make money, so they will cater to you in order to earn their slice of the pie...

+1, the normal contingency is inspection in which case if there is not a adequately functioning heating system this was then of course have to discussed. If no heat, that get negotiated in the price. If the oil system works fine and the conversion is not done? Well, you are paying for fair value for house - you assume the cost of conversion if that's suite you. Like any real estate transaction, we all change things in the house to make it our own. Contingencies just aggravate the sellers and if he/she is not stressed to sell and there are buyer in an improving real estate market, they will just going to the next offer. That's what I would do as a seller.

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corner559
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Re: Bad idea to put in contingencies when buying a house?

Post by corner559 » Thu Apr 25, 2013 6:02 am

Don't do it. I just sold a place and had 6 offers. The very first thing I did with my agent was toss out the bids with contingencies. I didn't want to deal with the headache. If it's something really glaring, you can just ask for a credit. In my case, the buyer wanted a new microwave, and I gave them a $500 credit toward one. Demanding things like installation if this or that just holds up the process.

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Bounca
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Re: Bad idea to put in contingencies when buying a house?

Post by Bounca » Thu Apr 25, 2013 6:12 am

What else do you like about the house? Like location, school district quality, closer commute to work, etc. Factor in those variables to why you want the house.

The psyche of the average 'fixer-upper' type would lean towards getting the house done to their liking with full intention on selling at a higher list price based on improvements.

You need heat, duh, so if you make an offer I think that is a reasonable thing to get resolved, regardless if it's oil or gas. As to other improvements they may be doing, you may be out of luck sitting on the fence until they are done. Wouldn't surprise me if it goes off the market and comes back at a higher list. I'd be patient. Unless you really want it, particularly for its location.

eucalyptus
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Re: Bad idea to put in contingencies when buying a house?

Post by eucalyptus » Thu Apr 25, 2013 6:31 am

A seller may not care about a contingency requiring action on his part. I don't care about contingencies I control.

Obviously a seller prefers a buyer who wants to buy as is, for cash, tomorrow. You need to figure out what's important to your sellers.

I ways worry about quality when someone is repairing or modifying an asset they plan to sell.

pshonore
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Re: Bad idea to put in contingencies when buying a house?

Post by pshonore » Thu Apr 25, 2013 8:28 am

Contingencies like financing and inspection are normal and no seller should object to them. Obviously a seller would prefer an offer with none. I would put in reasonable ones (if important to you) and negotiate if necessary.

retiredjg
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Re: Bad idea to put in contingencies when buying a house?

Post by retiredjg » Thu Apr 25, 2013 8:50 am

Does it make sense to put in an offer with a contingency that the heater is installed with an inspection to make sure everything is to code, etc.?
What other choice do you have? If you want the house, your offer must have the contingency.

I suppose you could wait till the heater is installed and then make an offer.

investingdad
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Re: Bad idea to put in contingencies when buying a house?

Post by investingdad » Thu Apr 25, 2013 9:32 am

Depends on the mindset of the Seller. And the market.

When we sold our place, I really wanted to get the heck out. Plus we were selling in 2010 which was a tough time to sell and still make money.

Our buyers wanted a few minor items fixed, one of which was completely stupid. It tipped me off that they really didn't know what they were looking at and wouldn't recognize a real problem if it were staring them in the face.

I think having a working heating system is important, so I'd probably put something in that notes it will be installed and functional to Code. Or negotiate a credit that will cover the cost to fix it if it needs fixing.

harikaried
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Re: Bad idea to put in contingencies when buying a house?

Post by harikaried » Thu Apr 25, 2013 12:30 pm

investingdad wrote:Depends on the mindset of the Seller. And the market.
Several people here have made comments along the lines of contingencies make an offer less attractive, and that makes sense because a simpler transaction is easier to complete if the goal is to sell the house faster. I think that's generally good advice when competing against other offers that have fewer/no contingencies.

This particular house has been on the market for about a month, and the price was dropped 4% about a week ago. This could mean the sellers are in a rush to sell or that the agent was getting uneasy that there weren't many/any offers or something else completely? From what I've found out about the sellers timeline to move and current projects, it seems like there is no particular rush, so it might mean there are few/no offers, which would be ideal for us putting in an offer with contingencies.

The contingencies we're considering would result in a higher offer price, so it seems like a win-win for both the buyers and sellers especially if it gives the sellers more time to live and enjoy working there (but perhaps not so much of a win for either listing or buying agents).

My wife and I have also have the mindset that it would be great if we can get this house at a good price, but if something does fall through, we would still be okay looking for other houses.

That said, I think the advice provided here so far is useful, so we'll need to also decide on a price for an alternate offer without contingencies if it does seem like there are competing offers without contingencies.

billern
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Re: Bad idea to put in contingencies when buying a house?

Post by billern » Thu Apr 25, 2013 12:55 pm

I would try to find a lender that does not require what your current lender does. It is is hard to find, perhaps the contingency is reasonable (ie: they would have to make the change to sell in any bank financed transaction).

rogermexico
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Re: Bad idea to put in contingencies when buying a house?

Post by rogermexico » Thu Apr 25, 2013 1:21 pm

Wouldn't the absence of a heating system fall under the normal inspection contingency? If so, I don't think you'd need to include a special contingency, which might be interpreted as a red flag that you as an unreasonable person.
There are very few lenders that would allow purchase without a heating system, so seller would be restricting themselves to cash buyers without an operating furnace.

stan1
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Re: Bad idea to put in contingencies when buying a house?

Post by stan1 » Thu Apr 25, 2013 1:48 pm

What does your Realtor advise? Complications like this are part of a "typical" real estate transaction.

Bill M
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Re: Bad idea to put in contingencies when buying a house?

Post by Bill M » Thu Apr 25, 2013 2:58 pm

Local ordinances might help you. Where I live the town requires every property to receive a "continuing certificate of occupancy" before the deed can be transferred. Working heater is certainly included in the CCO, along with railings on every outside stairway, hardwired CO2 detectors, etc.

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Meg77
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Re: Bad idea to put in contingencies when buying a house?

Post by Meg77 » Thu Apr 25, 2013 3:37 pm

There is no reason to put in a contingency for the heater or any other projects that you want done or fear will be done before you close on the sale. When you make an offer on a home it's considered that you are buying the home "as is." If they change the house for better or worse after your offer is accepted, all that does is give you an "out" if you choose to take it. You're the one that could back out down the road - not them. Of course it sounds like you're happy with the work they are doing anyway. But if they accept your offer they will not be free to accept additional offers without formally trying to get out of your contract.

After you have a contract you'll order an inspection. If the inspection reveals problems then the standard course of action is to re-negotiate the sales price (downward) to reflect the needed repairs. Or you can require the repairs be made prior to closing instead since this couple seems to be happy to make them on their own. If they choose to do additional projects that improve the value of the house after you've negotiated a sales price then that is their (somewhat dim-witted) choice. All it does is give you a basis for backing out of the contract if you change your mind though.

And yes if they want to stay in the house after closing and you can't move anyway, then a lease-back is common and acceptable.
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harikaried
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Re: Bad idea to put in contingencies when buying a house?

Post by harikaried » Thu Apr 25, 2013 6:12 pm

It sounds like people are suggesting that there wouldn't need to be any out-of-the-ordinary contingencies. It seems like the inspection contingency is pretty normal. I'm not sure if repairs are part of that inspection contingency or considered a separate repairs contingency, but those also seems pretty standard as well.
Meg77 wrote:If they change the house for better or worse after your offer is accepted, all that does is give you an "out" if you choose to take it.
Is this something specific in the contract that you're thinking of? Or would this be part of the final walk-through to make sure everything is as expected? Or perhaps as a standard followup inspection to make sure repairs have been made correctly?

Calm Man
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Re: Bad idea to put in contingencies when buying a house?

Post by Calm Man » Thu Apr 25, 2013 8:58 pm

OP, nobody will buy a house that does not have a functioning heating system and if the old one was replaced it should be removed. Every contract has contingencies.

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Meg77
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Re: Bad idea to put in contingencies when buying a house?

Post by Meg77 » Fri Apr 26, 2013 3:18 pm

harikaried wrote:It sounds like people are suggesting that there wouldn't need to be any out-of-the-ordinary contingencies. It seems like the inspection contingency is pretty normal. I'm not sure if repairs are part of that inspection contingency or considered a separate repairs contingency, but those also seems pretty standard as well.
Meg77 wrote:If they change the house for better or worse after your offer is accepted, all that does is give you an "out" if you choose to take it.
Is this something specific in the contract that you're thinking of? Or would this be part of the final walk-through to make sure everything is as expected? Or perhaps as a standard followup inspection to make sure repairs have been made correctly?
In every standard real estate purchase contract there is a section (with certain popular software that realtors use it's Section 7) that is called Property Condition. Paragraph A of that section says the seller has to give the buyer access to the property for inspection and must have all utilities turned on. Paragraph B says the seller has provided you with a Seller's Disclosure Notice (this should detail all home fixtures, amenities, as well as any problems or needed repairs). You'll want to make sure to get this "as of" the day of your contract so everybody is on the same page. Paragraph C is about lead and usually irrelevant, and Paragraph D has two options for the buyer to check. You either check the first box which says "Buyer accepts the property in its present condition" or you check the second box which says "Buyer accepts the property in its present condition privided the Seller, at Seller's expense, complete the following specific repairs or treatments:_______________"

So basically when you make the first offer you can check the first box and just have the inspection. If the HVAC hasn't been done (or hasn't been done right) by the time of the inspection and/or if the inspector finds any other problems, then you edit the contract to fill in that blank or adjust the price if necessary (if you want them to do the work you can ask them to do it and have a reinspection to confirm; if you'd rather just lower the sales price and then do the work yourself later you can offer that instead). If you add something to that blank though it's not a contingency; it's just part of every standard contract. If the seller signs the contract they are pledging to do that work (if you put anythign in there) and the listing would no longer be active. They can't just keep taking other offers.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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Meg77
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Re: Bad idea to put in contingencies when buying a house?

Post by Meg77 » Fri Apr 26, 2013 3:22 pm

Oh and by the way you have every right to request that the Sellers not initiate any further renovations or repairs once a contract is executed by both sides. There's no need to put this in writing; you could just have your Realtor let them know you'll be doing a walk-through before closing and will insist on a reinspection and renegotation of the contract if anything appears different. Then once you close, if you lease it back to them for awhile you'll have a lease to protect you. Included in standard lease contracts is a clause that the renters cannot initiate any repairs or change the property without your explicit written approval.
"An investment in knowledge pays the best interest." - Benjamin Franklin

harikaried
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Re: Bad idea to put in contingencies when buying a house?

Post by harikaried » Wed May 01, 2013 1:58 pm

Just to update, both the seller and buyers have accepted the offer. The contract seems to have ended up being relatively straight forward.

We provided some extra time by setting the close of escrow to be the middle of July with the inspections scheduled to happen before the end of June to allow for the gas line and furnace to be installed. We did add 2 notes to the "additional terms & conditions" section for 1) installing a specific natural gas heating unit (that the seller already has) and 2) slurrying the oil tank.

I spoke with the seller directly as my wife was signing/scanning/emailing the offer. The seller let me know that the furnace is being installed this weekend ahead of the energy company installing the gas line and that they would be happy to help us in moving and scheduling to push the timeline up as desired.

retiredjg
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Re: Bad idea to put in contingencies when buying a house?

Post by retiredjg » Wed May 01, 2013 2:15 pm

Sounds like things have worked out for you. Good luck!

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Re: Bad idea to put in contingencies when buying a house?

Post by fcox85 » Wed May 01, 2013 2:36 pm

pshonore wrote:Contingencies like financing and inspection are normal and no seller should object to them. Obviously a seller would prefer an offer with none. I would put in reasonable ones (if important to you) and negotiate if necessary.
I would agree with this. I just bought my first house, and it went seamlessly with standard contingencies such as home inspection, pest inspection, approval of financing, etc. We had a number of minor items that were completely reasonable for the seller to take care of before we agreed to pay hundreds of thousands of dollars, to then turn around and have to fix ourselves immediately.

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