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Large snake pits herein. There is language which we can use when negotiating the contract to avoid problems after the option feasibility period of the contract.
Last week we discussed Paragraphs 4,5 and 6 of the commercial contract. Again I reiterate that the 1 to 4 family residential contract is similar to the commercial contract, except the commercial contract has more pages, because there are more snakes.
Paragraph 7 Property Condition
Para 7 A states the repairs that the seller will do before closing. I can not remember when I used this paragraph, for reasons which will be evident later in this podcast.
Paragraph 7 B – is very important because it gives the buyer time for building inspection by a licensed inspector and a property environmental study, which may be required by a lender.
The consideration paid to the seller for the feasibility period is negotiable.
Why is money paid to the seller for time?
If you pay for it, you own it.
If you do not pay for it, a gift can be revoked.
Additionally, the seller wants “Good Faith” money.
No Free Look.
It might be a small amount if there is doubt about the ability to sell or if seller needs to deliver questionable documents.
The length of the feasibility period may need to be extended in Paragraph 7 B (2) …. If a preliminary tour indicates a possible need for and EPA Phase 2 soil sample tests.
Paragraph 7 D says that the seller will deliver feasibility docs to the buyer within “X” days. Those docs may be required by Buyer’s bank lender.
Frequently buyers and inexperienced buyer agents check every box to get every document.
Primarily because they do not know what the contract language means nor the use of those docs.
As an example, the Buyer will ask for copies of notes and deed that the Buyer will assume, but the loan is not assumable.
They ask for water and sewer utility capacity letters from the city, but the Buyer does not expect to build new construction
Or the city wants to see building plans in order to provide the utility capacity letter.
The buyer may want copies of insurance policy, but insurance is not transferable nor assumable.
The buyer wants “
As-Is” construction plans for a 40 yeara old building that is 2 stories short.??
Buyer wants property tax statements, but that is online FREE.
Paragraph 8 B may be necessary to know if the landlord gave free rent to a new big box store instead of money to install walls, bathrooms, and heating.
This is not usual with multifamily apt units.
However, sometimes I have to tell buyer agents “No estoppel Certificates” signed by tenants. Some do not speak English.
Paragraph 9 B (1) Says Seller’s broker may pay buyer broker a commission at closing or seller will pay buyer broker at closing.
The last page of contract states “How much” the seller’s broker will pay buyer broker
Some buyer agents will inadvertently say that the buyer broker will be paid by BOTH the seller and by the seller’s broker.
Oops. Change that …… One but not both.
Paragraph 10 Closing
Is “X” days after the feasibility inspection period or a specific date.
Seller wants the money quick or put it back on the market.
Seller does not realize the world has changed in last 10 years.
More government regulation and lender bureaucrats have more loan policies
The bank clerk takes the loan application out of file drawer to review, one week before closing …. Because the clerk is busy with other loans.
The clerk then asks buyer and seller for more paper documentation and clerk reviews the additional docs.
The clerk gives the file to the supervisor for review.
Then the supervisor wants more info from buyer and seller.
Some the info is not available and we debate.
Last year a bank lender wanted the buyer to pay for one year of hazard insurance before the bank would deliver loan note docs to the title company for closing.
IF the seller was in a car wreck, buyer would get a refund for 9 months of the annual cost.
Some times the bank lender asks for docs they forget they have.
I insert language into the contract which automatically extends the day for closing, when the buyer makes an additional deposit to non-refundable earnest money to the title company.
Easier than later asking the seller to sign amendment to extend closing date.
We have today discussed paragraphs 7 though 10.
Paragraph 11 Special Provisions can very involved with many special words for special challenges. We can discuss it next podcast.
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