The buyers for my Rental #1 had the inspection done and they found a couple of things. There is some roof damage that appears to have been caused by the storms on June 4. Some floor joists are rotten and need to be replaced and there are some other minor issues. The buyer is willing to do all the repairs except for the roof. My agent suggests that I file a claim with my insurance to get the roof repaired.
Now, you may recall this offer was as-is. My agent said the buyer was still within their inspection window and could back out of the contract based on the inspection results. So I asked my agent, if the buyer can still request I make repairs and can still back out of the contract and get their deposit back if I don't make the repairs, what exactly does as-is mean? She had no satisfactory answer. I don't feel I really have the standing to fight this. The contract did state that, even though it was an as-is offer, the buyer still had the right to inspect the property. When I read this, I thought it meant they still had the right to enter the property before the close of escrow to inspect it. Apparently, other parties feel it means they still have the right to cancel based on the inspection results. In other words, the words as-is in the offer are meaningless. It ambiguous enough that I don't want to bother fighting it.
My insurance deductible is $1,000. We're going to call the insurance agent and have them send someone out to look at the roof and see if it warrants filing a claim. If it does, we are going to ask the buyers to split my deductible with me.
Looks like we definitely will not make our July 2 close of escrow date. I hope we can close before July 15 though, so I don't have to make another mortgage payment.
Wednesday, June 25, 2008
Pointless Contract Verbiage
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4 comments:
As-is, subject to inspection means the buyer is willing to purchase the property as long as the inspection does not turn up anything not to their liking. They can get out of the contract based on the inspection during the inspection period. I have bought several properties, including foreclosures, on this basis.
The roof was probably not part of their calculations. Rather than rejecting the property outright, they are still willing to go through with the deal if a way to fix the roof can be found.
After the insurance company has looked at the roof, you can decide whether to offer a concession or refuse to make the repairs. The buyer then will have the choice to proceed or cancel, as long as they are still within the inspection window.
If you can get out of this property for a few hundred dollars more, that might be the simplest way to resolve the situation. It doesn't sound like the house would pass an FHA inspection, and that really limits the buyer pool to investors right now.
But my point is the standard real estate contract already gives the buyer the right to get out of the contract based on the results of the inspection. So there is no need to specify as-is!
Shaun:
These buyers made a low offer because they were willing to fix the things they observed as they walked through the property and minor things turned up by the inspection report. Their inducement to you to accept the low offer was that it was a cash offer and they were buying the property "as is." However, they reserved the right to walk away if the inspection report revealed expensive problems.
That's a different offer than one that does not specify the buyer will not ask for repairs or includes financing that will require the property to be repaired to some standard (e.g. FHA) before escrow closes. Had you accepted an offer like that, you would be fixing the rotten joists and every other problem the inspection revealed. If you chose not to fix the problems, that deal would be dead.
You are correct in saying "as is" really isn't. What it does mean is that the buyer will accept the property "as is" or reject it based on the inspections. The buyers here clearly think the property is a good deal and want to proceed if they can get you to fix the roof.
Well they offered to buy the house as is. Because of their findings, and the way the contract is written they CAN back out. BUT you also can back out because they are not willing to take it as-is. They still get their money back because of that clause but that is why it was in there. If it was me I would tell them that they can take it As-Is or you will fix it and the prices goes up by $2000. $1000 for the deductable and $1000 for your effort and stress. If you are willing to do this they could walk and if you are willing to risk that it is ok. If you are motivated and willing to just give in to their demands (This is what they want) you can do that. It is all up to how important this closing will be.
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