The Buyer
You have found the investment property that you have been looking for. It’s time to make an offer.
To buy a piece of property or any other real estate without all of your homework completed means that you must have a way to cancel if something unusual and unexpected comes up. Waiting for all inspections, financing, etc. before making a purchase offer is a good way to lose that property to another buyer. Maybe another buyer knows about contingencies.
A contingency gives the buyer a way to cancel a purchase contract and getting any cash deposit back if some future event fails to materialize. Even though the sellers have accepted the offer, the well-written contract should contain these extremely important escape clauses.
The buyer’s partner may not be available until the weekend. A contingency for the inspection within a few days will usually be accepted. Normally, the seller will refuse no reasonable contingency. They know that any other buyer will also request reasonable escape clauses.
Typically, the following two contingencies are written into nearly every offer on a property:
- Financing. You can get out of the transaction if the loan specified in your contract is not approved.
If it is a business, the buyers are allowed to take a look at the property’s financial records. The income and expense records are very necessary for a better evaluation of the overall cash flow. Also check out the property’s vendor records and operating invoices to better calculate the property’s financial health and whether it is turning an actual profit or not.
- Property Inspections. You can cancel the transaction if you don’t approve the inspection reports or cannot reach an agreement with the seller about how to handle necessary repairs.
Before you invest in any real estate property, it is important to you to ensure that both the building and land are safe and suitable
When you place an inspection contingency on your proposal, you ensure that you get a chance to inspect and examine the condition of the building and the land that it is built on.
Some other things to check include:
- The safety of construction,
- The conditions of the amenities of the building and need for improvement (if any).
- Verify the square footage and whether you can afford to invest in the deal or not.
Zoning contingency
It is necessary to be sure that you can do whatever you wish with the property. It is possible that the zoning laws set in the area or locality can forbid you from using the commercial property for what you plan for it.
Other standard contingencies can give the buyer the right to review and approve such things as a condominium’s master deed, bylaws, and budget as well as a property’s title report. You might want to make the contract contingent upon your lawyer’s approval of the contract or your partner’s inspection of the property.
What good is an accepted offer that has several escape clauses in it? An accepted offer with contingencies ties up the property for a short period of time. This gives the buyer time to check out the property, the traffic, the parking and any other things that affect the property. The buyer does not worry about the owner selling the property to someone else while he is spending time and money inspecting it and getting all of his questions answered.
The Seller’s Side
On the other side, the seller must protect himself. He or she must limit the time of the contingencies in a counteroffer if those time limits seem unreasonable. The seller does not want the property taken off the sales market for weeks just waiting for a simple walk-through inspection.
Inspections by partners or approval of existing deeds, bylaws, easements, etc. should not take more than two or three days. Financing may take a few days longer, but most loans can be approved very quickly. The seller’s real estate agent can give guidance on the typical time limits for various types of contingencies. The shorter the better for everyone!
By making strict time limits on removal in writing of all of the buyer’s contingencies, the seller can get the property back on the market within days if the buyer cannot perform.
Contact your experienced commercial real estate agent to ensure that you get the best out of the deal. They will help you negotiate the terms and get the best offer for the property that you are looking at.