Now that your home has been listed for sale on the market, you’re ready to accept offers! Before you review any offers, it’s important to understand what requests and conditions might be contained in the offer and what are your responsibilities. There are a few standard escape clauses in the Residential Purchase Agreement that allow a buyer to cancel the Purchase Agreement without risk to their Earnest Money Deposit or EMD. The standard contingencies are Financing, Inspections and of course the Appraisal contingency. Additionally if you live within a common interest community or HOA, any offer will be contingent on the buyer accepting the HOA terms.
This information is designed as a general overview of what may be included in the offer and should not be used as legal or financial advice. Please consult with your Listing Agent or a qualified Loan
Officer for additional details.
First let’s look at the types of offers and their standard contingencies,
not including acceptance of any HOA terms .
This is by far the least demanding of all offers and may have no contingencies.
1031 Exchange Offer:
Almost like a cash offer, since it uses proceeds from a previous sale
Financing, inspections, FHA amendatory clause which is very similar to the separate appraisal contingency
Financing, inspections including a required pest inspection, VA Amendatory Clause which is very similar to the separate appraisal contingency
Financing, inspections and appraisal contingency
Each contingency affects the offer in a different way and at different times. As a seller, your Listing Agent should let you know the deadlines for these contingencies and your responsibilities when responding. They are listed below according to the timeline that your transaction is likely to follow.
The New Loan Application is one contingency written for the Sellers’ interest. It is a negotiable time frame that should be completed within a few days of your acceptance of the offer. It states that a buyer using financing should complete a full loan application for the property they wish to buy. Up to this point, the buyer could only have a loan pre-approval. The new loan application provides specific information about your property to the buyer’s lender and is a demonstration of their diligence
in moving forward. If your buyer has not completed this application, it is a demonstration that they are not moving forward in a productive manner. In this case you have the ability as a seller to cancel the contract to find a more serious buyer.
The second part of the Financing, the Loan Contingency is designed to protect the buyers’ interests. This contingency is written to allow time for the lending institution to fully review the buyers’ paperwork and credit worthiness and could extend up to 45 days in the case of some Government-backed loans. This can be extended as needed, provided everyone agrees in writing, but should this contingency expire, the seller may receive the EMD as compensation for taking the home off the
market while the buyer works to complete paperwork with their lender.
For any offer that is using financing, there will be an appraisal that sets the value of your property. Should your home be valued at less than the contracted price, the buyer is allowed to cancel their offer and receive a full refund of the EMD. A low appraisal does not necessarily mean that the offer will be cancelled. There are a few options including adjusting the sales price or amending the contract to confirm the buyers’ willingness to pay an amount over the appraised value. The VA and FHA Amendatory Clause also addresses the value of the property and is required as part of a loan package.
Before any buyer takes possession of the subject property, they will likely want to have it inspected to make sure that there are no conditions of the home that they find unacceptable such as electrical,
structural or other such issues. Should any unacceptable conditions be found, the buyer may submit a Request for Repairs or ask that the contracted price be reduced to offset the expense of these repairs. Additionally, the lender may request certain conditions be repaired as a condition of the loan, such as fixing a broken air conditioner or stove, which would then fall under the Financing Contingency.
If your home is within a Common-Interest Community, better known as an HOA or Home Owners Association, there will be specific rules within this community. It is the sellers’ responsibility to order a “resale package” from the HOA within 2 days of accepting the offer to purchase. It will generally take about 10 days or more to receive, at which time your Listing Agent will provide it to the buyers’ Agent. The buyer then has 5 days to review these terms before accepting or rejecting the rules and regulations. If they find anything that is unacceptable, they can cancel the contract while retaining their full EMD.
Now that you know of the standard contingencies, what are some of the other things a buyer might ask for?
Lender and Closing fees:
A direct seller contribution of funds to help the buyer purchase your home.
Home Protection Plans:
A prepaid protection plan to help offset the expense of repairs for covered items that fail after the buyer takes possession of the property.
Fixtures and Personal Property:
These are personal items that are not considered “real property” or part of the house, such as the refrigerator, washer and dryer or even furniture and art.
Reviewing the offer:
A Listing Agent should provide you with an overview of each of the offers, so that you have a complete understanding of not only the timelines for each offer, but also your net compensation for the sale. Las Vegas has been in a sellers’ market for a number of years. As a result many homes will receive multiple offers to purchase. It is important to understand how the different requests affect your bottom line. Once you have reviewed any offers received, hopefully you have one that you will find acceptable. Once you accept an offer, it’s time to get your Calendar ready for the Closing Timeline.