Writing Offers & "Due Diligence Periods"

Posted by Van Purser on Friday, September 2nd, 2016 at 3:43pm.

With the ongoing challenges presented by the current economy and the new rules associated with the HVCC Guidelines, the strategies used to insure that your interests as a buyer are protected are essential.  One special area of consideration in Georgia is the “Due Diligence Period”.

Prior to the recent decline in real estate values the biggest challenge faced by most buyers was resolving with the sellers any items that came up on the inspections performed.   This was due in part to the fact that loans were readily available for practically any buyer with no money down and very little qualifying. And, to the fact that prices were pushed up due to overly relaxed lending guidelines which encouraged buyers to pay more for homes because they could finance the entire purchase price.  Consequently there was generally no need to be concerned about getting a loan or the home appraising.  This has all changed.

In the current market although inspections continue to be a major concern when purchasing a foreclosure they may be less critical on homes that have been reasonably maintained and are owner-occupied.  Replacing inspection issues as the major concerns for buyers is the appraisal followed by their ability to secure financing. With this in mind here are a couple of suggestions.

1.  Consider providing at least 40-45 days to close.  This will provide enough time to conclude the appraisal process, complete inspections, and provide enough time for final conditions to be met in order to satisfy underwriting requirements.

2.  Consider including an appraisal contingency in your offer and consider having the appraisal done prior to having the inspection done.  This will limit your out of pocket expense to the cost of the appraisal (usually $400-450).  This also provides you the opportunity to address what could potentially be the largest financial hurdle to clear in the entire process.  Three recent experiences involved sellers faced with having to reduce their price by $25,000; while another seller was required to reduce the price $14,000, while still another needed to reduce it by $12,000.  In these cases as in many others buyers are being asked to contribute to the failure of the property to appraise for the purchase price by paying more that it appraised for or by reducing seller contributions to closing cost.  When these amounts are considered they have the potential of affecting the transactions by thousands of dollars which is typically more than the financial impact of resolving inspection issues.  By addressing this issue early in the “Due Diligence Period” you will address the most critical issue before incurring additional costs associated with inspections.

3. Consider doing your inspections after the appraisal contingency has been satisfied.  By approaching the “Due Diligence Period” in this manner it provides you the buyer the opportunity to address inspection items after you and the sellers have amended the purchase price to the appraised value; if there is a difference between the two. 

4.  Consider splitting the earnest money into two or more separate payments.  For example if the earnest money is $5,000 you might make $2,000 payable upon reaching a binding agreement.  The balance of $3,000 might be remitted in two payments of $1,500 each, one occurring at the time the appraisal contingency is satisfied and the other occurring at the time the inspection issues are resolved.  This will serve as an encouragement to keep the seller involved in the process,

Please remember if you are represented by an agent to discuss your strategy prior to making an offer.  If not you may find yourself putting lots of time, energy and expense into a transaction that may not work.

Van Purser is a licensed real estate broker in Georgia.  Since1981 he has successfully purchased and renovated over 400 homes.  His expertise is in the area of foreclosures, rehabs and fixer uppers.  Additionally, he has represented hundreds of clients over the years as a broker with Metro Brokers, RE/Max and now with his own firm.  He and his wife, Jeanne, who is also a broker, have been married for 32 years.  For follow up on this article you may email Van at VanPurser@VanPurser.com

 

 

Van Purser and his wife Jeanne are a licensed Real Estate Brokers in Georgia.  Since1984 they successfully purchased and renovated over 400 homes.  Their expertise is in representing Buyers or Sellers as an advocate; which means always ensuring their best interest.  Additionally, they represented hundreds of clients over the years as an Associate Broker with Metro Brokers, RE/Max and now with his own firm.  He and his wife, Jeanne, have been married since 1977.   Van or Jeanne can be reached at 770-623-3313, or by email at vanpurser@vanpurser.com or jeanne@vanpurser.com

Leave a Comment