Posted by Craig on April 26, 1999 at 12:22:58:
You have your buyer preapproved for whatever loan they are getting whether seller financed and resold or whatever. When you know that they will qualify you execute your sales agreement, and immediately notify the seller that you are exercising your option, thus whether he finds a better offer or not, once you have “exercised your option” it’s too late. Word the contigency so that he may only take a better offer up until you exercise the option.
Purchase Agreement weisel clauses - Posted by Lynn (AL)
Posted by Lynn (AL) on April 24, 1999 at 16:17:50:
I trying to get Options on houses to flip with owner financing, but I’ve ran into sellers who do not want to just give an option. They agree to sell at a low price, but they want a commitment now.
What wordage can I place in a Purchase Agreement to use as a weisel clause, in case I can not find a new buyer to flip to in the usual time?
If anyone could send me a copy of one of their completed Purchase Agreements so I can see what you are doing.
Thanks for everyone’s help.
Lynn Henley
Fax: 815-550-4644
Here’s the only contingency you need… - Posted by Scott Britton
Posted by Scott Britton on April 25, 1999 at 11:22:02:
Lynn,
Here’s what I use… “Buyer to have 15 days from acceptance of offer to inspect and approve of property or this offer shall be null and void.”
You can also add an “access” clause such as… “Buyer to be allowed access to said premises for showing to inspectors, appraisers, contractors, termite specialists and potential tenants/buyers.”
Hope this helps!
Best of RealEstateSuccess!
Scott Britton
What about getting financing? - Posted by Lynn (AL)
Posted by Lynn (AL) on April 25, 1999 at 13:58:01:
Scott (and others),
I understand about the “inspection clause”, but I’ve been told that some people are using a weisel clause that says something like: “Buyer has ___ days to secure financing from ABC Mortgage Comp.” Well…if someone to flip to has not been found in ___ days, guess what, they present a letter from ABC Mortgage Comp. and they’re out of the deal. (In this case, ABC is a REAL company.)
What do you think?
Re: What about getting financing? - Posted by Scott Britton
Posted by Scott Britton on April 26, 1999 at 07:23:59:
Lynn,
If I am making “All CASH” offers… I wouldn’t use a financing contigency like the one you decribed. Remember… you don’t have to have the cash to make the offer… just to close. The “inspection and approval” clause gives you a back door in the event you need one.
I don’t like financing contingencies… partner approval contingencies… and the like simply because I don’t think they will command respect for you. It looks too much like you either can’t make the decision yourself… or you don’t have the resources to help solve someones problem. In other words… these do nothing to help build your credibility with the Seller.
By the way… I think you would be wise to start calling these contingecies… and thinking of them as contingencies… instead of weasel clauses. Contingencies are used every day… in all contracts. Besides… you are not striving to be a weasel… you are striving to be a pro! Choose your words wisely.
Best of RealEstateSuccess!
Scott Britton
Re: What about getting financing? - Posted by JohnBoy
Posted by JohnBoy on April 25, 1999 at 14:49:08:
If your buying properties to flip then that means usually making all cash offers at a discounted price to leave room for a profit. If your offering all cash then using a finance contingency isn’t going to work.
One other clause you should use is limiting the amount of any damages to the earnest money deposit. Then the most anyone could get out of you is your earnest deposit.
Using an inspection clause to back out within 15 days is the best way to go.
I agree… - Posted by Sean
Posted by Sean on April 25, 1999 at 17:01:03:
Inspection and approval by yourself (or partner) is a great weasel clause. Although it wouldn’t work in this situation I’ve also heard putting in a contingency that the contract is “subject to receiving financing at terms acceptable to the Buyer.” That’s nebulous enough that you can always claim you didn’t get financing at terms acceptable to you.
Re: What about getting financing? - Posted by Lynn (AL)
Posted by Lynn (AL) on April 25, 1999 at 17:00:02:
John Boy,
I’m not referring to an all cash, no contingency offer. And it’s not a situation where I alreadly have potential buyers lined up. I’m referring to an offer on a property that I would really rather just option, but the owner won’t go for that. He wants something a little more concrete. So I’d say something like: “OK, I’ll buy your house, close in 60 days, contingent on full inspection and me getting financing.” (Don’t worry, my offer is, at the most, 85% of FMV.)
I heard this idea from a note buyer who says he has investors using this concept. If they can’t find a buyer to flip to, he writes a letter on company letter head saying that they will not approve his loan. Have you (or anyone) ever heard of this strategy?
I guess the flip side would be, sign with a 15 day inspection clause, have an “open house”, and try to find a qualified buyer during that time. If nothing pans out, walk at the end of the 15 days.
Any other suggestions and/or comments?
Lynn (AL)
Re: What about getting financing? - Posted by JohnBoy
Posted by JohnBoy on April 25, 1999 at 21:05:40:
I’ve heard of several people that were trying to create a mortgage where a note buyer says they would buy the mortgage at closing. The only problem with this is many buyers and sellers were at the closing table ready to close only to have the note buyer not fund the deal at the last minute. There are a lot of people out there advertising as being note buyers, but what they’re really doing is trying to broker the note to another buyer. If they don’t deliver a note buyer the buyer and seller gets screwed in the end thinking the sale was going to go through.
What your talking about is trying to retail the property to another retail buyer. The 15 day inspection clause isn’t going to do you any good in this type of a deal. It will generally take a lot longer than 15 days to secure a retail buyer. You say the seller wants something more concrete that you will buy his house.
The best approach is to be honest up front with the seller or your going to have an upset seller after 60 days rolls around and you can’t close the deal. That’s not going to look to good on you after you’ve done this to people several times. Your reputation is going to be effected in the long run.
You can do what your trying to do, but I would be up front and explain to the seller that you will be willing to make a more concrete offer, but it will be subject to you getting favorable financing within 30 days. You need to set the closing date for 60 days so you will have enough time to close if your financing was approved 25 days from now.
Then you can advertise the property to find a buyer within 30 days. If you don’t have a buyer secured at the end of 30 days then you can back out with your financing clause. If you did secure a buyer at the last minute at the end of 30 days then you will need the next 30 days for your buyer to go through all the loan approvals allowing enough time for their lender to close the loan. That’s the purpose of setting the closing for 60 days. 30 days to find a buyer and 30 days for your buyer to close the loan. If you don’t have a buyer by the end of the first 30 days then back out so your not tying up the sellers property for longer than you need too.
Re: What about getting financing? - Posted by Zeus(ID)
Posted by Zeus(ID) on April 25, 1999 at 23:24:41:
Great ideas all! I think that you should also consider putting in a clause that allows you to nullify the contract at your option in the case of the seller getting a higher offer than yours. If you find a buyer then you go thru with your deal. If not then you use your out-clause. But if the seller has another buyer lined up behind you willing to pay more money, he may pay your option fee of $1,000, $2,000, or more to get money more quickly and more of it. Plus it opens you up to more buyers that you wouldn’t see since your seller has probably advertised the house already. Just a thought.
Re: What about getting financing? - Posted by Lynn (AL)
Posted by Lynn (AL) on April 26, 1999 at 11:42:36:
Zeus,
So, what wording would use to write that into your agreement?
Suppose you use that, you find a buyer, but while you’re working with your buyer to get the paper work in order, the seller comes to you saying they had a higher offer. How does that make you look to your buyer?
Lynn (AL)
Re: What about getting financing? - Posted by Zeus(ID)
Posted by Zeus(ID) on April 26, 1999 at 19:42:04:
What Craig said was right on! If you have a buyer lined up then of course you would go thru with your contract to the seller. This “option clause” I’m talking about is just that, an option for you! It goes into effect only if you want it to. If you didn’t have a new buyer and someone else was talking to the seller also then you have the opportunity to make some money here. The seller only knows that you have the first option to buy his house at whatever price. You can exercise that option when you find another buyer or want to buy it yourself or whatever. If you can’t, and have to walk away from the deal thru one of your “weasel clauses”, this is only giving you a chance to make some money. As for the wording, you should just ask a real estate lawyer in your state to make sure it is worded correctly. Or maybe someone here on this board can help you better than I can. Good Luck and never say die!