Experienced investors often evaluate multiple properties simultaneously and don’t have time to carefully inspect each one. Novice investors don’t always know what constitutes a good deal, and therefore need lots of time to think about it. How can both experienced and novice investors tie up what looks like a promising piece of real estate, yet not get burned if it turns out to be a marginal deal?
The answer: Put the property under contract and make sure to use a contingency clause. But what exactly IS a contingency clause? It’s simple: A contingency clause is language that let’s you get out of a real estate contract-if you decide not to go through with the deal-without any financial risk to you.
When writing offers to purchase real estate, contingencies will protect you and give you greater control. This is true whether you are dealing with:
1. For Sale by Owner (FSBO) deals,
2. Real estate marketed through the MLS, or
3. Properties that have been repossessed by banks.
All You Need Is One
There are literally hundreds of contingency clauses you can use as a buyer. The clauses you can use are limited only by your imagination. But you don’t need hundreds in your contract-you only need one to get you “off the hook” if you decide not to go through with a deal. Here are three powerful contingency clauses used frequently by savvy investors:
1. This offer is contingent upon buyer receiving favorable financing.
2. This offer is contingent upon buyer’s inspection and approval of property before closing.
3. This offer is contingent upon buyer’s partner’s inspection and approval before closing.
(The third clause can generally get you out of any contract and could easily be modified for use with someone other than your “partner”-perhaps your attorney, CPA, spouse, or another friend or family member.)
It’s Your Right to Opt out of a Contract
Some people refer to contingencies as “escape” clauses as if it were somehow wrong to decide against following through with a real estate closing. But remember, a real estate contract gives you-the Buyer-the specific right to do additional research to make certain that you want to conclude the transaction. And the Seller agrees to give you this right when you use a contingency clause in the contract. The time between when you sign a contract with a seller and the day you close is your opportunity to do further due diligence. So go ahead and:
1. Inspect the property further.
2. Run the numbers again.
3. Reevaluate your exit strategy.
4. Get the opinion of others.
After you’ve done all that-whether you’re an experienced investor or a rookie who’s new to the game-you can walk away if the deal is not what you want.
Let’s say you put a property under contract, and have used the time since to analyze the deal further. It’s the day before closing. You’re feeling uncertain. What if you inspect the house again and decide you don’t want it? Can you get out of the contract? Yes. Do you have to close now? No. Assuming you put down earnest or escrow money, can you get it back? Of course. So what is your risk? Absolutely nothing!
That’s the beauty of using a contingency clause!
Now get out there and start writing contracts. If you remember to use a contingency clause, you’ll never lose a minute of sleep!
Ian Lurie and his team write articles for Trump University (http://www.trumpuniversity.com), where Donald Trump’s Experts Teach Real Estate Investing, Entrepreneurship, Business Management and Wealth.
[tags]real estate, investors, contingencies, clause[/tags]
|
|