Michael Roberts' Blog -San Jose Homes, Real Estate and Houses for Sale

In the purchase contract your contingencies are those items that determine if you still like the home, accept the value and choose to proceed with the purchase.  I listed the three types below.  Their purpose is to provide a set time period for you, the home buyer, to investigate the property condition, title history and to secure financing.

The common contingency periods are 10- 17 days.  The clock starts at the ratification date of the contract or when your purchase offer is signed and acknowledged by all parties.

• Property Condition

• Financing

• Title Conditions

These are the most common contingencies found in your purchase contract.  They are not required , however your contract should have one or more of these the contingencies.   Which contingencies, is dependent upon the structure of your particular home purchase offer.  The following details their significance to help you avoid the most serious consequences.

Property Condition: This is usually based on reports like the home buyer property inspection, the termite report, roof report and, when applicable, the fireplace or masonry report.

You may order any number of inspections you deem necessary.   Inspections for rural property would be far more extensive than those necessary for a home in the suburbs or condominium.  Raw land (dirt) properties require the most intensive inspection process.  This would include septic or perk, utility soil, geological etc.

Loan Contingency: The loan approval or financing contingency is used to give you time to gain your loan approval.  There is an additional element, the appraisal.  These should be tied together.  If the home you want to buy appraises at a value equal or in excess of your offer you won’t have any problem.

The appraisal contingency can cause a problem if it is incorrectly used in the contract.   What if  the home does not appraise for the amount you offered and you removed your loan contingency?  For example, you received your loan approval subject to the appraisal and you removed your loan contingency.   What if the home appraisal did not meet the offer price you and the seller agreed on?

You would likely find yourself in a pickle.   It would be up to you to find a way to cover the difference in price.   Not a fun place to be.  You could negotiate with the seller and ask for help, pull money out of your pocket or hope you  have another contingency to use to cancel the contract.  I suggest you take measures to prevent that from happening.   Make sure the contract uses language that ties the loan approval and home appraisal together.

appraisal note: The new loan disclosure process, that began last July, requires the lender to disclose your costs and allow you 72 hours to review them (commonly called the GFE  [good faith estimate]).   Often by email (except Wells Fargo).   When that is sent to you by email or if your lender sends by regular mail you simply respond to it and that initiates the appraisal order.

The appraisal then occurs.  The appraised value simply needs to meet the value that you offered for the home.   We then remove appraisal and loan contingency.

Title: The title search is performed by the title company hired to hold escrow and perform it’s duties as a neutral third party.  The  title report is necessary to identify any clouds on title.   Clouds on title are issues that affect ownership.   This would include liens (encumbrances) and ownership rights of others attached to the property.

In addition, it clarifies lot lines, easements and the ownership title chain.    The title company will provide a preliminary title report during the contingency period set forth in your home purchase contract and a final report, an updated version of the preliminary report, is available prior to the transfer of ownership.

Condominium buyers have a few other items to consider and should have these built into any contract.  The most common of these is the Home Owners Association documentation.    This package can be quite extensive.   It covers the contingencies mentioned earlier and other important  items: HOA budget, HOA reserves, HOA meeting minutes covering the past 12 months, articles of incorporation and by laws.

Not as common, yet  becoming very important in today’s atmosphere,  is to determine if the HOA project, sometimes called a PD or PUD, is FHA  approved for FHA lending or VA approved if you are considering a VA loan (veteran’s administration).

Michael Roberts is a licensed California Realtor and real estate investor providing agent representation to home buyers and sellers in the San Fransisco Bay area.

He can be contacted at mroberts@rwnetwork.com or his Website http://www.LosGatosHomesandRealEstateBlog.com

Sad but True (true story)    You might find the ending a happy one.

Terry (not her real name) called our office in tears.  Her home was going on the county steps, the following day, to be sold to the highest bidder in a trustee sale.

She did have a little cash in the house in the form of equity.  Not Fair!

Not a fun call by any measure.    After living there for 25 years and raising her family, the lender was foreclosing.   Not a rare story…I know.

This put the whole office in a buzz to solve Terry’s problem.  I called my cash investors, others called attorneys.    My ‘ace in the hole’ investor was in Europe the other was unable to put it all together in such a short time.

It was looking dire by the end of the day.

The only solution turned out to be bankruptcy…according to legal council!  That’s not what this story is about though.  This was the only way to halt the foreclosure and allow Terry some time to get a grip.  After all, she raised her kids in this home, had no job prospects and was on the verge of a serious breakdown.

She needed to hit pause.

Terry was not devoid of responsibility and I won’t defend her position.   She just needed help.

So, the only alternative was bankruptcy.  The search began for an attorney to embrace Terry and get the ball rolling.   This was done in an attempt stop the snowballing effect!  One found,  we began to focus on solutions.

Move ahead a few days….

Terry hired us to meet the required ‘sale of the home‘ that the Trustee ordered.   This is where it went haywire AGAIN!  The Trustee said he had the legal authority to choose and hire a Realtor.  Well, his Realtor was preparing to sell the home for a ridiculously low price (about $100K low).   Leaving Terry with nothing!  The Trustee’s agent claimed his price was based on his ‘expert opinion‘, the current market and the home’s condition.

Not so fast mister!  We appealed to the Judge that this agent was out of his gourd.  Providing some strong fact based data, we were granted the job to sell Terry’s home.  Sorry Mr. Trustee‘s agent (and Mr. Trustee)!

The home was in bad shape, for sure.  The kitchen cabinet doors were falling off, the Master Bath was in need of a Hazardous Materials Team and the yard more resembled a Jungle than a forest meadow with curb appeal.

We jumped in with both feet.  Providing labor, guidance, advice and, in some cases, a late night shoulder for Terry to cry on.

The home sold in 10 days.  The offer was great and provided Terry with $90,000.00 dollars after expenses.

We make money doing this, right?  In this case there was little money left over after all the hours and effort.   It wasn’t what I earned that was rewarding, it’s what I learned…..

I work with the best group of ‘people’ in the world!  They’re not your typical, robotic, scripted salespeople who only look out for themselves…they’re real people – that care!

I almost  forgot the best part.    Once Terry began to see the light at the end of the tunnel she gained enough confidence and piece of mind to secure a great job!

Terry has a bright future on the horizon!

note:  this solution is not for everyone there are short sale and other options to consider