Contract Contingencies When Buying or Selling in Mammoth Lakes
Use a Mammoth realtor or broker when making a decision to purchase in Mammoth Lakes. I happen to be one and want to share some of my experience and expertise with you.
Residential Real Estate Purchase Agreement and Joint Escrow Instructions
Buyers and Sellers are asked to sign a Residential Purchase Agreement and Joint Escrow Instructions when making an offer to purchase real property.
Contract Contingencies - What do they cover and who do they protect? (Part 1)
Typical contingencies for a buyer are:
- Physical inspection
- HOA documents
- Short sale advisory
- Selling an existing property
Typical contingencies for a seller are:
- Receiving from the buyer the preapproval letter.
- Receiving from the buyer verification of funds for either the down payment or the cash required to close the escrow.
- Finding replacement property.
- Cooperation from the buyer for a 1031 Tax Deferred Exchange.
There are time frames involved in these various contingencies. The number in the contract unless changed by the agent completing the documents is typically 7 days for proving ability to complete transaction, (preapproval letter and verification of funds) 17 days for the physical inspection and approval of HOA documents, 17 days for the loan and appraisal.
- As a buyer you want to present your offer with a preapproval letter and verification of funds. It shows the seller that you are in a position to complete the contract. It shows that you have been diligent and have planned for this purchase. If you are making an offer on a bank foreclosure or a short sale, banks won’t even consider an offer without this documentation. If banks won’t take seriously an offer, why should an informed seller?
- The loan contingency standard time frame of 17 days is, in my opinion, unreasonable. Banks can’t make a determination on a buyer’s ability to qualify for a loan in 17 days, so I typically request at least 30 days depending on the percentage of down payment a buyer is offering.
- I also will request 30 days for the appraisal, as often times, once the appraisal is completed, it still has to be reviewed by underwriting and they often seek a second opinion.
- The Title policy will be received by the buyer with the escrow instructions within a few days of opening the escrow. Things for the buyer to review: Are any easements? Typically there will be easements for utilities (that is a good thing), C.C. & R.’s will also be recorded, any loans, any tax liens. Your agent should be reviewing the title report as well. When I see a lien amount that is close to or exceeding the purchase price, I immediately call escrow to see if a demand for the current balance can be obtained. I want to be sure that my buyer will receive clear title.
- Physical inspection is paid for by the buyer. It is a good idea to hire a professional, a third neutral party, with Home Inspector certifications. They will go through the property and have a long and complete list of items they verify and check. They will then give you a detailed report with photos. This is for the buyer’s peace of mind in knowing the current condition of the property. Often, this list is given to the seller with a request that certain items be repaired as part of the purchase process. This request can be accepted by the seller, the seller can agree to repair some items and not others, or the seller may not agree to any of the repairs. If this is not agreed to between buyer and seller, the contingency clause can be used to cancel the contract. All contingencies must be removed in writing and there are special forms we use to complete that part of the contract. It is important to complete this within the specified time frame which is typically 17 days. If this isn’t done within the specified time frame, the buyer or seller can initiate a Notice to Perform.
I will cover the rest of these items in my next weekly blog.