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NEED-TO-KNOWS ABOUT REAL ESTATE CONTINGENCIES

 

You’ve found a house you’d like to purchase, and you’re ready to make an offer. It’s time to take a closer look at the purchase contract—perhaps the most important legal document for real estate transactions—and decide how you want to modify its terms, including adding various contingencies.

 

Contingencies? Yes, it’s an uncommon word. The real estate industry is filled with unfamiliar terminology. A contingency refers to particular provisions in a standard purchase contract. If the condition isn’t met, you’re allowed to back out of the purchase, without penalty.

 

Contingencies are a good thing, in terms of protecting buyers. They can also backfire if you insist on too many contingencies or are competing with less demanding buyers.

 

Here are several key points to keep in mind.

 

1. Know the market.

In a seller’s market (when there aren’t many properties in a specific price range or a particular geographic area for sale), contingencies will encourage sellers to find a more accommodating buyer.

In fact, in a strong seller’s market, some buyers severely limit their contingencies and offer more than the seller’s asking price, potentially triggering a bidding war.

In a buyer’s market (when there are more properties for sale than there are interested buyers), sellers are more likely to accept buyer contingencies.

Don’t know what market your area is experiencing right now? That’s okay. Your Accredited Buyer’s Representative specializes in staying current on that information for your local market. Just ask!

 

2. Understand which contingencies are common (and which aren’t).

Your buyer’s representative can also provide the best advice on which contingencies are appropriate and commonly accepted in your market. Every area operates under different standards and conventions.  

A few examples:

  • Home inspection – If something is seriously wrong with a house, you’ll want to know before you buy, not after the closing, when it’s too late to address the issue with the seller. Inspections are primarily designed to evaluate the structural and mechanical condition of a property, although specific conventions vary by market. Inspections may also check for mold, radon, pests, lead, septic systems, or other specific concerns. A home inspection (at the buyer’s expense) is a highly recommended contingency clause.

 

  • Attorney review – The seller, the buyer, or both may request a certain number of days to have their attorney(s) review the contract for sale and the closing documents.

 

  • Mortgage financing approval – Smart buyers secure a pre-approval letter from their lender before submitting an offer. However, your mortgage financing could still fail to reach final approval due to findings in the property inspection, a too-low appraisal, or a final review of your financial situation.

 

  • Approval of homeowner association (HOA) documents – If you are buying a property governed by an HOA, you can request these documents before making an offer to ensure the HOA is on solid financial ground. Alternately, this can be a contingency item.

 

  • Early occupancy (with payment of rent) or furniture move in – If your timeframe requires a critical move-in deadline, such as the start of a school year, you may want to stipulate this as a contingency.

 

  • Appraised value – The appraisal may come in lower than your offer, in which case an appraisal contingency can provide an option to attempt to renegotiate the selling price. Also, note that lenders can reject your mortgage application if an appraisal comes in too low.

 

  • Home warranty – A buyer may make the sale contingent on their ability to secure a home warranty on the property. Be aware that some home warranties require a home inspection before purchase to prove that a warranty claim is not a pre-existing condition.

 

  • Sale of a current home – This contingency requires the seller to agree to delay closing until you’ve found a buyer for your current home. It’s a tall request, especially in a seller’s market. If the contingency includes a “bump” clause or “kick out” clause, the seller can continue marketing their home in hopes of finding another buyer.

 

3. Watch those dates!

If your contract includes deadlines related to contingencies, be sure to monitor them carefully. Your buyer’s rep will help you stay on top of these too.

Dates matter, since even a one-day lapse could put you in jeopardy of non-performance of your contractual obligations, potentially resulting in the cancelation of your purchase contract and loss of your earnest money.

Add any critical deadlines to whatever calendar system you rely upon, as well as alerts a couple of days before the deadline hits.

KNOW YOUR CONTRACT CONTINGENCIES: CALIFORNIA’S REAL ESTATE INSPECTION CONTINGENCY 14(B)(1)

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“Buyer’s offer has no contingencies.” This phrase has become increasingly common in the Bay Area’s competitive real estate market, where buyers are looking for every advantage to stand out from the crowd. Whether you are the buyer or seller, it is important to know what contingencies are and where to find them in your contract.

In this three-part series, I will explain the typical real estate contingencies and help you identify them in your California real estate contract.

What Are Contingencies in Real Estate?

A contingency is a condition that must be fulfilled before the sale of a home can close. In California, these conditions are typically found in the buyer’s offer. The most common form we use to write an offer is California Association of Realtors (C.A.R.) Form RPA-CA.

Real estate contingencies typically fall under three major categories: appraisal, home inspection and mortgage approval. Think of these contingencies as a buyer’s and seller’s safety net. If a home does not appraise at a certain value, if an inspection reveals a major problem, or if the buyer cannot obtain adequate financing, the parties can back out of the contract without penalty.

In addition to specifying contingencies, your contract will set specific deadlines. For example, the buyer will have 17 days to complete inspections (see below). It will also state when and how notice of cancellation must be given and received.

California’s Inspection Contingency: 14(B)(1)

home_cutawayIn California, the default inspection contingency gives the buyer a little more than two (2) weeks – 17 days – to complete all inspections.

C.A.R. Form RPA-CA, section 14(B)(1) reads:

BUYER HAS: 17 (or ___) Days After Acceptance, unless otherwise agreed in writing, to: (i) complete all Buyer Investigations; review all disclosures, reports, lease documents to be assumed by Buyer pursuant to paragraph 10A and other applicable information, which Buyer receives from Seller; and approve all matters affecting the Property; and (ii) Deliver to Seller Signed Copies of Statutory and Lead Disclosures and other disclosures Delivered by Seller in accordance with paragraph 10A.

During this 17-day contingency period (or the timeframe agreed to between the parties), the buyer typically hires independent inspectors to look at the home’s roof, foundation, structure (termites, mold, etc), and any other areas of the home the buyer sees fit. Contact your real estate agent for referrals to trusted inspection professionals.

If any major problems are found, a buyer may then ask the seller to make repairs or may request a monetary credit for repairs at closing – see section 14(B)(2). The seller, however, has no obligation to respond to either request.

Lifting The Buyer’s Inspection Contingency

After the agreed upon inspection period has passed, the seller must request that buyer lift their inspection contingency. If seller does not obtain a contingency removal, buyer’s inspection period remains in effect, “based on a remaining contingency.” See 14(B)(4). This means that technically buyer’s inspection contingency can remain in effect all the way through the deal — meaning buyer can back out and recover any earnest money deposited with escrow.

Sellers, your agent will likely send a “Notice of Buyer to Perform” (NBP) requesting that buyer either remove the contingency or back out of the contract. This will allow you to move on to other back-up offers if buyer fails to adhere to the agreed-upon inspection timeline.

Should I Write a No-Contingency Offer?

Well, that depends. Has your seller already had a professional inspection completed? What did the inspection reveal? Was the foundation adequately inspected? What about the roof? How old is the home? What updates have been recently done by the seller? Were permits obtained for any structural work?

I have represented Bay Area buyers who successfully wrote offers with no contingencies and I have represented buyers whose succesful offers included more contingencies than are typical. No home is the same and I think your offer should reflect your comfort with the home’s condition, your ability to obtain financing (or pay cash), and your overall risk tolerance.

I recommend that buyers do as much due diligence as possible before writing an offer. There is no substitute for being 100% confident in your offer before it is sent on to the seller. This will set the tone for a smooth transaction all the way to the closing table.

 

Posted on June 27, 2019 at 10:49 PM
Carlos Camargo | Category: Buying a House, Credit & Home Finance, Credit & Home Finance, First-time Buyer

Base Year Value Transfer for Homeowners Age 55 Years or Older (Proposition 60 & 90)

Base Year Value Transfer for Homeowners Age 55 Years or Older (Proposition 60 & 90):
Senior Citizens & Disabled Person(s) – Under certain conditions, persons aged 55 and older or severely disabled persons of any age may transfer the Proposition 13 factored base year value of their principal residence to a residence acquired or built as its replacement (ref. Proposition 60 & Proposition 90, Revenue and Taxation Code section 69.5). A base year value transfer allows an eligible homeowner to preserve their Proposition 13 protected assessed value.
Essentially the base year value transfer creates an exclusion from reappraisal at fair market value on the replacement property.

 


Exclusions from Reappraisal – Frequently Asked Questions (FAQ for Propositions 60/90 Transfer of Base Year Value)

Proposition 60 was a constitutional amendment approved by the voters of California in 1986 and is applicable to owners who transfer the base value between properties located within the same county. Proposition 90, approved November 8, 1988, extended these same provisions to a replacement residence located in another county on a county-optional basis.

 Alameda County currently accepts qualified transfers from other California counties.

The general qualifying criteria for both Proposition 60 & 90 is as follows:

  • The claimant or claimant’s spouse must be age 55 or older when the original residence sold.

  • The original residence must have been eligible for the Homeowners’ Exemption either at the time it was sold or within two years of the purchase or construction of the replacement property.

  • The replacement property must be the principal place of residence and eligible for the Homeowners’ Exemption.

  • The replacement property must be of “equal or lesser value” than the original property.

  • The replacement property must be purchased or built within two years (before or after) the sale of the original property.

  • To receive relief from the date of transfer, you must file your claim within three (3) years following the purchase date or new construction completion date of the replacement property. A claim that is filed after the three-year filing period may receive the benefits commencing with the lien date of the assessment year in which the claim is filed. Retroactive benefits from the date of transfer will not be granted.

To apply for the Prop 60 or 90 tax base transfer, submit a completed claim form and a copy of identification showing date of birth. If your original residence was in another county you must provide us with copies of your last property tax bill and the closing escrow statement from the sale of the original property.

Related piece from the SF Chronicle this past summer:Bill would expand property tax portability for older CA homeowners,” http://www.sfchronicle.com/business…

Posted on January 19, 2018 at 4:35 AM
Carlos Camargo | Category: Credit & Home Finance, Selling a House

Thinking of buying a home? – Become Credit-Ready by Establishing a Good Credit History

Thinking of buying a home? – Become Credit-Ready by Establishing a Good Credit History

Five Tips for Establishing Credit

  1. Bank Accounts  – If you don’t have a bank account, you need one. This is an easy process that can often be completed online. If you are not sure which bank to choose, begin by asking your friends and family for recommendations. After opening your account, make sure you carefully balance your account on a regular basis and avoid any overdraft charges. Even though this activity is usually not reported to the credit bureaus, lenders inquire about bank accounts on credit applications.
  2. Apply for Credit Wisely – Do not apply for too much credit at once. This can appear as though you’re desperate for credit and perhaps make lenders less inclined to extend credit to you. In addition, too many credit inquiries can have a negative impact on your credit score.
  3. Vary Your Credit Types – Credit scoring models value having different types of credit. In plain English, it is beneficial to have both revolving accounts (credit card) and some installment accounts (like a car payment). As always, paying bills on time every time is essential to building your credit.
  4. Consider a Co-Signer – Obtaining a loan in the absence of any credit history can be difficult, sometimes requiring a co-signer to guarantee payment. The loan is usually structured where the primary borrower is expected to make the payment, with the pay history reported in both names. If the borrower defaults, the lender will approach the co-signer, and missed payments will be reflected on both credit files. There is somewhat of a risk to the co-signer, but if handled responsibly, co-signing can be an effective way to help another person obtain and build credit.
  5. Consider a Secured Credit Card – If you are unable to get an unsecured credit card, many financial institutions offer secured credit cards. Your secured credit account activity is reported to the credit bureaus each month and after making responsible payments on a secured card you will be more likely to get an unsecured card.

 

 

 

 


 

What’s my home worth? – http://www.carlosfcamargo.com
What can I afford? – https://homeasap.com/carloscamargo

 


 

Posted on December 16, 2017 at 6:45 PM
Carlos Camargo | Category: Credit & Home Finance