Skip (CA)...Response Regarding Contingencies... - Posted by JPiper

Posted by JPiper on May 31, 1999 at 13:19:58:

For some reason I could not respond to your post…so here’s my response in a separate place:

Hi Skip:

I have never used the “straight option” type of offer. I try to stay with what people view as “normal”. There are usually enough things about my offers that a seller might have a problem with?.like the price, or the terms?.that I don’t see the value in further complicating the situation by presenting a “straight option” that would seem to deviate from the norm for single family homes. And as you say, you can turn an offer made with a standard real estate contract into an “option” by combining it with a contingency.

The usual contingency that I use is an inspection contingency. I agree to accept the house in “as is” condition, but I make that subject to an inspection and subject to my approval of that inspection. An inspection contingency is widely viewed as “normal”, and doesn’t cause any red flags to go up. I explain it to the seller that I will accept the “as is” condition of the property, but I also explain that I need to determine specifically what that “as is” condition is.

When I use this contingency it turns my offer effectively into an “option”. But as an aside, I use it typically for a safety valve. Normally I am well aware of the condition of the property, and have already mentally decided to buy the property. If my goal is to assign the property, then I will attempt to do so prior to my closing. But normally I’m ready to close whether I am able to produce an immediate buyer or not. I’m normally confident of my price or terms, and my ability to re-market the property? I’m not probably going to walk away from the deal. I’m not recommending this for everyone, I’m just telling you how I do it.

Sometimes I make an offer with NO contingencies other than contingencies revolving around the seller delivering clear title. My thought is that this strengthens the offer from the seller’s perspective. Again, I would not recommend this for everyone, especially for newbies?.but normally my price and/or terms are such that I know I won’t have a problem disposing of the property.

I don’t use a “partner” contingency. My feeling is that this is a “weak” offer?.especially if the seller is knowledgeable. If I received an offer with a “partner” contingency, I would reject it. I would tell the alleged buyer to get his/her partner over to the property to look at it, then make an offer in the name of the buyer. I would further believe that I’m not dealing with the decision maker. According to the offer the “partner” is effectively the final decision maker. None of this would be acceptable to me personally. And I would have to believe that this opinion would be true for any other seller that is knowledgeable.

In some types of offers I would have other contingencies. As an example, if I were making an offer for a property which had tenants, my offer would include a contingency providing for the review and approval of the leases, and a review of tenant history information.

I don’t make my offer subject to appraisals. I’m normally confident of my estimation of the value of the property. If I’m confused about the value of the property, I either don’t make the offer, or I make it so low as to compensate for my confusion.

A good general statement regarding my own methods would be that the fewer contingencies the better. If my offer is low enough, or attractive enough based on terms, and my belief is strong enough in my exit plan, I may have no contingencies (other than title type contingencies). I’m willing to be stuck with a poor tenant as an example if my price is so low that I feel compensated for having to deal with this poor tenant.