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Foreclosures 101: Limiting contingencies

If you’re a veteran foreclosure buyer, this one is probably obvious., but a little refresher never hurts. When making an offer on a property, do all you can to limit the number and length of your contingencies. Depending on the property, and your personal taste, you might want to get an inspection of the roof, the sewer and possibly the whole property before purchasing. With the fast pace at which many deals are made, many times there isn’t enough time to check out everything before you put in an offer. Speed is always key in the foreclosure business.

Other times, its just not worth lugging a ladder to the property to check out the roof or pay for a sewer scope inspection unless you know you have a deal.  This is a reasonable position as I have worked with clients that have offered on as many as five buildings before they had an accepted offer. You would stand to lose hundreds of dollars in such a situation if you paid for inspection prior to having a signed contract.

Despite the confusion on the subject, asking for a contingency to check out these issues is not only allowed, but expected when perusing a foreclosure. After an offer is accepted, most banks have you sign their own contracts (or addendum) in addition to the original. Almost all of these documents have an inspection period automatically written into the contract. I have seen anything from 5 to 10 days automatically provided.

For all intents and purposes, this means that they don’t balk at such short-term contingencies as they are accustomed to buyers offering on properties sight-unseen. The best advice I can give is to try to limit the amount of time you ask for. I generally prefer to ask for no more than 5 business (or banking) days as it is realistically enough time to finish any inspections and doesn’t seem to scare the seller. Of course if you don’t want an inspection contingency at all, the seller isn’t going to be upset.

The other contingency you might run across is a financing contingency. This is a little more delicate since many buyers make offers that are not contingent on financing. If you have such a contingency in an offer that is equal to that of another potential buyer save that point, there is really no way to win. That doesn’t mean you shouldn’t make it as clean as possible. Try to keep the contingency to a maximum of four weeks. Any longer than that and you start to raise doubts with the seller whether or not you will able to reliably perform. You should also provide the most convincing proof of financial viability as possible. I’ve already covered this topic in a past article, but remember to consider sending bank statements along with any preapproval letter.

If you are going to work with any other contingencies you will probably have a hard time getting any offer to go through. Requests common among market deals, such as repairs or other concessions, are hard or impossible to come by on bank-owned REO properties. With inspections and financing contingencies, just keep them as short and simple as possible. They aren’t big bargaining chips, but every little thing can count in this game.

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