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Georgia high school teacher Donelan Andrews won a $10,000 reward after she closely read the terms and conditions that came with a travel insurance policy she purchased for a trip to England. Squaremouth, a Florida insurance company, had inserted language promising a reward to the first person who emailed the company.

"We understand most customers don't actually read contracts or documentation when buying something, but we know the importance of doing so," the company said. "We created the top-secret Pays to Read campaign in an effort to highlight the importance of reading policy documentation from start to finish."

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Not every company is so generous. To demonstrate the importance of reading the fine print, many companies don't give; they take. The mischievous clauses tend to pop up from time to time, usually in cheeky England.

In 2017, 22,000 people who signed up for free public Wi-Fi inadvertently agreed to 1,000 hours of community service — including cleaning toilets and "relieving sewer blockages," the Guardian reported. The company, Manchester-based Purple, said it inserted the clause in its agreement "to illustrate the lack of consumer awareness of what they are signing up to when they access free Wi-Fi."

Though this story has several absurd aspects, adding a clause to a contract is a serious business when you are making an offer to purchase real estate. None of them will be hidden, and the seller will immediately read all of them – no need for offering a reward.

Here is some great information to remember when making offers on residential investment properties.

Unlike residential home buyers, rental investment buyers are up against a “rock and a hard” place when it comes to inserting conditions in their offer. That is because excellent investments are hard to find, and competition for them is fierce. When you find one, more buyers are waiting in the wings to snatch the property away right under your nose.

So an investor must exercise great tact when making their offer so as not to offend a seller. It means that the myriad of contingencies often found in residential home purchase contracts must be sensitively applied when it comes to an offer for an investment property. It is usual for contracts for the purchase/sale of property to contain more than several “contingent” terms, particular obligations or conditions precedent to the obligation of a party to perform under the terms of the contract. Frequently, these conditions involve the buyer’s verification of specific stated facts or the seller’s performance of individual acts or the happening of some event by a specified date. Those contingencies are usually well accepted by buyers. But others may seem more onerous to sellers even though they seem reasonable to the buyer.

So your are familiar with them, the following are some of the specific conditions typically found in a sales contract:

1. That the buyer obtain financing for the purchase;

2. The property will appraise for the agreed-upon price

3. That the buyer will conduct a home inspection;

4. That the buyer inspect the property for pest infestation;

5. The seller’s lender approving the purchase price, terms of the contract, accepting a payoff for an amount which is less than the balance due on a loan and releasing and providing a satisfaction of mortgage (Short Sale transaction);

6. That a survey be obtained verifying the property boundaries and absence of encroachments; (This is often a lender requirement)

7. That the seller make certain repairs or improvements;

8. That the buyer sells his or her present home before closing on the new real estate;

9. That the buyer be approved by a condominium or homeowner association before closing;

10. That the seller provide evidence of marketable title before closing; and

11. Either or both parties’ attorneys must approve the contract within days of signing the contract.

The fewer contingencies used when you make an offer, the greater the chances of acceptance by a seller. So when making an offer, consider what risks you will take to acquire an investment property. Then be sure to consider including contingency clauses in your contract to avoid unfortunate or unfair circumstances.

Contract contingencies are ideal for minimizing purchase risk, but they are a double-edged sword. Because contingencies can sometimes elongate the timeline or cause deals to fall through. That is because sellers are wary of accepting offers with contingencies, especially if they have some offers without. Because of this, buyers should only include a contingency if necessary, and if so, try to limit them to just one or two. Including too many contingency clauses in an offer may scare sellers away, so a best practice is to only include contingencies when absolutely necessary. 

Have you run into difficulties with contract contingencies? Which contingencies are important to you?

I look forward to seeing you next week with some more helpful investment information you can use. Please let me know if you have a special topic that you would like me to cover in a newsletter. I would be happy to do so. Contact me at: robertgilljr.com

Robert Gill, Jr.
Robert Gill, Jr.
robertgilljr.com

18 Bank Street Suite 1, Summit
NJ 07901 United States

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