How To Make A Real Estate Contract Work For You

When it comes to helping your real estate agent draw up the contract there are a number of factors to take into consideration.

As an investor, you should play an active role in drawing up the sales agreement so that it meets your goals as an investor.

What is a real estate contract?

It is essentially a contract between two parties for the purchase and sale of a piece of real estate. It must be in writing and signed by both parties in order to be valid.

Local Comparable

You and your realtor should look at other properties that are similar-square footage, bedrooms, bathrooms, year built, location- Your realtor should prepare a CMA (comparable market analysis) that encompasses all of these factors so that you can make an informed decision on your starting offer.

Down Payment

Your loan program will dictate where you need to start in terms of down payment. For example, most conventional loans require investors to start by putting 20% down. However, there are some programs that require less and there are some banks that may require more. Your lender can provide you with the information for your area and loan program.

Days Listed

Knowing how long the property has been listed also weighs in on your starting offer. If a property has been listed for a while the sellers may be more willing to move on the price, meaning you can potentially start with a lower starting offer. Even more, if a property has undergone a price drop while it has been listed, pay attention to how many times the price has been dropped and see if there are any patterns emerging.

For instance, if a property started off being listed at $275,000 and after a month on the market dropped $25,000 and then another month later dropped $25,000- you can see the pattern and perhaps have your starting offer could be another $25,000 lower assuming after a month they would drop it to that anyways. It gives you a place to start negotiations.

Property Condition

After viewing the property with your realtor, the condition of the property should also weigh into your starting offer. If you walk into a property that is turn key, meaning you will not have to do any work to it and your realtor does a CMA that shows it is well priced, then you probably won’t get much movement on the price. However, if you check out a property that needs quite a bit of work, whether cosmetic or skeletal, you can use that to help you start with a lower starting offer knowing you will have to put cash into it to get it ready to rent.

Closing Timeline

Although often overlooked by rookies, the number of days until the closing date can also have an effect on your offer, especially if you are competing with multiple offers. Your realtor should talk to the listing agent about how quickly the sellers would like to close. If you are able to tailor your timeline to theirs then you may have a better chance at getting the property on your terms.

Seller Concessions

This factor can be beneficial to you as an investor. You may write into your offer for the seller to pay some of your closing costs. Which is great in terms of saving you cash up front. However, the property and the market will dictate whether that is a good move for you. For example, if you are writing on a property that is priced well and in a hot area, you could be competition with other offers-meaning you may not want to include this in the contract. Someone making an offer that doesn’t ask the seller to put up more money would probably be taken, depending on the other terms, over yours.

Deposit

Sometimes referred to as either an Earnest Money Deposit or a Good Faith Deposit, this sum of money is provided by you and held in escrow to prove that you are committed to the property. The number varies by state, but we use 1% of the purchase price as our guideline. This deposit is submitted when you present the contract. This check will be cashed if your offer is accepted and will be netted from your down payment. Contingencies There are three major contingencies that can be worked into a contract- home inspection, appraisal, and financing.

Contingencies

Home Inspection contingency. Typically this is a 7-10 day window where an inspector, a contractor, or yourself spends time thoroughly viewing the property for major issues that could potentially be worked into the contract for the sellers to fix. In addition, during this time if any major issues arise that are beyond your scope you are able to pull out of the contract without losing your deposit.
Appraisal. If you are purchasing a property using financing you will need to get at least one appraisal completed. An appraisal will tell give you a basis for value to ensure that you are making a wise financial decision. This will be conducted by a third party that neither your realtor nor your lender have any control over. **Note: There are some loan programs that do not require an appraisal. Check with your lender.
Financing. This is typically the last contingency to complete in this process. At this point, you’ve inspected the house and you are clear. The appraisal has been completed so you know the value is there. Now you have to be able to obtain financing, hence the importance of the pre-approval we discussed earlier. If you experience any major changes that would jeopardize your ability to qualify for the loan you could get out of the contract. Moreover, if the loan program undergoes any changes that would affect your ability to qualify you could also pull out of the contract. In both of these instances you would not lose your deposit. We buy houses Folsom CA.

Once you’ve established your offer and presented it to the seller and negotiations have concluded it is time to sign the purchase agreement.

When the buyer and seller both sign the contract it becomes ratified and is a binding contract that both must follow until the agreement is concluded at closing.

Many people ask themselves: why should I do a home sewer system inspection before I buy a property? Should I go through the expense of having a home sewer system inspection when I buy a home to live in or to use as a rental? The short answer is, yes, having a home sewer inspection is a wise move before buying regardless of the age of the property. This simple act of due diligence has the potential to save you a lot of money and hassles.

My Sister Did Not Have a Home Sewer System Inspection

My sister bought a house about 15 years ago. It was part of an estate. They did not have a sewer inspection at the time they bought the property and were unaware of any sewer problems. Very shortly after they moved in, however, they started to immediately notice the toilets backing up and they had trouble getting rid of the water in their washing machine.

They called their local plumbing company to snake the sewer line and learned they had a collapsed section of Orangeburg sewer line. Just months after the move-in expenses, they were hit with another large bill to replace their Orangeburg with Polyvinyl chloride (PVC). Luckily the city connection was on their side of the street and they did not have to cover the cost of tearing up and replacing the street as well.

Sewer Lines and Simple Wear and Tear

Sewer lines can be damaged due to cracking, pipe shifting, tree roots invading the pipe, collapsing, or cracking from materials that have worn out. Repairing a damaged sewer line could become one of the most costly repairs you will ever make to your property. It is good to know what your risks are with this before you purchase a property. The internet is littered with horror stories of people who did not perform an inspection of the sewer line on the property they were purchasing, just like my sister, and found out later the reality was something far different. You don’t want to be one of those stories.

Is a Home Sewer System Inspection included in My Home Inspection?

Generally, the sewer inspection is not included in the regular house inspection. You will need to specifically request the sewer inspection in addition to your house inspection. Often, it is an entirely different company that will perform this inspection. The cost ranges from $200 – $450 depending on your area.

What is a Sewer Line?

First, what is a sewer line? All homes have a sewer line that is buried in the ground and takes waste water (water from toilets, washing machines, etc.) away from the house to be processed for treatment. Here is a little more information about each of the different sewer line types:

1. Cast Iron Pipes

Cast iron pipes are found in older homes or neighborhoods, although they are still installed today, but much less frequently. These pipes can sustain the greatest amount of pressure but are susceptible to corrosion and generally have a lifespan of 30 to 50 years.

2. Clay Pipes

Clay pipes are found in older homes or neighborhoods. Although they are occasionally installed today, they are heavy and more difficult to work with than plastic. A benefit of clay pipes is that they are highly resistant to chemical degradation. One downside to the clay pipes is that roots like to attach to the porous surface of the clay pipes which can result in breakage or blockage of the pipe.

3. Fiber Conduit Pipe

Fiber conduit pipes are made of tar paper and are also known as Orangeburg (named after the town it was created in). Orangeburg was used for home sewers from around 1950 until the early 1970s when it was eventually replaced by mostly PVC pipe. Orangeburg was made out of layers of wood pulp pressed together. Fiber conduit pipes have a lifespan of approximately 50 years depending on the ground conditions and usage.

4. Plastic Pipes

There are two types of plastic pipes called Acrylonitrile butadiene styrene (ABS) and PVC, PVC is the more common solution. These are used most frequently today, and because of the smooth nature of their surface, they are less likely to have trees roots attach to them but are prone to breakage.

How do I Know the History of my Sewer Line?

If you are purchasing a home through a realtor, a disclosure is required (for most states) that you can check to see what the previous owner knew about their sewer system and any sort of back-ups that were known. They are required to disclose what they know. This is a bit of a gamble trusting this information as the homeowner may have not really understood what they disclosed, or there is a problem that has not shown itself yet. Often, deterioration of plumbing has happened slowly over time, and people are unaware there is a problem.

Another way to know the status of a sewer line is to check with your local city officials in the Public Works Department. You will be able to see if anything is on record of changes for the street or house.

How the Home Sewer System Inspection Process Works

The purpose of a sewer inspection is to determine the condition of the sewer pipe and check for blockages. The inspector will check for roots invading the pipes and other pipe-defects, such as caved-in areas within the pipe from deteriorating Orangeburg, or if there is calcification, corrosion or scale build-up within the sewer line.

Once you decide to complete a sewer inspection, the chosen inspection company will need access to the house for up to 4 hours. They will bring a long tube with a lighted camera. The camera will be fed through an access point within the house (generally in the basement) and run to where the sewer line connects with the city sewer line or a private septic system. The person operating the camera will have a monitor to watch as the camera is fed through the line to spot problem areas and are able to mark exactly where potential problem areas are.

If you have a private septic system to check, there is an additional cost for $500-700 for this to be checked and that can only be checked when the ground is not frozen.

When the inspection is complete, you’ll receive an assessment of your home sewer system and learn what, if any, action is needed. Often the inspecting company will also provide pictures or a copy of the video of the inspection itself.

Last Thoughts on Sewer System Inspection

If the sewer inspection is completed during your due diligence and a problem is discovered, you can bring this to the attention of the seller for a credit or decide if the risk is too great and walk away. Either way, you are far more informed about a future problem that has the potential to cost many thousands of dollars in replacement of the sewer line and tearing up the yard.

The moral of the story here; a sewer system inspection is well worth the $200-450 this service costs and is valuable insurance or a great negotiating tool if done prior to closing. We make it a practice to perform this check when we buy properties but would love to hear your experiences with performing sewer checks.

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