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This class was taught on July 1, 2020.
First, we will give you a big-picture overview of the entire inspection process for Colorado real estate transactions.
We will discuss where the inspection falls in the entire Buying Process.
Then, we discuss where it falls in the Contract To Close process.
- What level of inspecting are we doing prior to going under contract?
- The critical importance of dates during an inspection
- What rights do you have to inspect once you’re under contract? What can you inspect? What can’t you inspect?
- What are your options based on the inspection?
Then, we discuss the dates and deadlines:
And drill down into the inspection and due diligence dates and deadlines:
- The parties involved in the inspection
- A detailed walk through of the Inspection Objection form
- Avoiding loan fraud during the inspection process
- Sample Inspection Objections
- Sample Inspection Resolutions
- Terminating based on inspection
- Getting your earnest money back when terminating based on inspection
- Some final negotiating tips for the inspection
The following is rough transcript (done by a computer) of the entire class.
Well, good evening and welcome, everyone. My name is James or and I’m joined tonight by two very special, very, very, very special guests. Number one, I’d like so much that I married twenty five years ago. That is Tammy. Tammy, welcome to the call, by the way. Tammy’s introvert and the other guests I have. I did not marry this person, although I do like them very much to. Brian waves, Brian wants to the called, who’s not an introvert.
Well, you’re not an introvert. You’re like your crazy hard core extrovert. Right. And so I said, yeah, who is the.
Oh, yeah. Who is not injured. That’s correct. Yes.
So anyway, let’s ask him it of the statement. Not a question. That’s correct. That’s correct.
So tonight. We are going over negotiating win win inspections for maximum benefit. If I smoke, let me know if they could see the slides on the screen and can hear us every good. We’re good. Perfect. Well, then I’m going to continue. So upcoming classes. Thanks. Other upcoming classes paying off debt optimization. For rich investors, I still don’t know how to say that class like where’s the emphasis on the words? Is it paying off debt atomisation or is it paying off debt optimization?
Price optimization of paying off debt?
Is the optimization paying off? So what does that class even about that sexy class? That class is about snowballs and avalanches and snowflakes and not the kind. That’s the political kind. But it’s about paying off your debt and which way is better or faster or suits you the best, whether you have college debt or a car debt or credit card debt or loan debt from houses or you’re in debt to your bookie or whatever it is. This is how you can pay it off.
OK, awesome. And that’s going to be next week at six. And then the week after that is going to be a workshop. We’ve never really done a workshop on Zoome. So interesting to see how this will go. But during the class on how to get your first deal done, Brian went over his buying criteria as an example. And during that class, I asked people if they would like to do their own buying criteria is like a workshop and there was a lot of interest in that.
So we are going to do a stablish in your own buying criteria and I will create some worksheets for people to use to develop their own. And we will do that as a workshop on July 15th. Not sure if that be full two hours or four beautiful, shorter class or not, but that will be what is happening on July 15th. And then just in time.
Brian’s been waiting to do this class again, buying down interest rates. Brian was sacked last month about. It’s exactly about that. It’s about buying down interest rates, how to decide which rate to buy down to and why you might want to buy down. And I have some very interesting buy down charts already from lenders on this that show what lenders are currently thinking and what they’d like you to buy down to versus what they wouldn’t like you to buy down to and why.
And so it will be hopefully, hopefully, if I have time, me updated spreadsheet, we’ll get done and then we can share that out and anyone can use it. Awesome.
So that’s going to be buying down at Straight’s on July 2nd. Then I’m going to do a new class closing real estate deals. It’s been, I think, three years since I taught a class on closing and sold over. Like what closing looks like the two different parts of closing, closing the real estate portion, closing the low end portion. And there’ll be a lot of detail, a lot of information, tips for doing closing that will make your life easier, make your deals more profitable, help you with a bunch different stuff related to that.
And that’s going to be on July twenty ninth. And then Brian is teaching the ever popular which. I don’t know why this class is so popular, but it is like insanely popular whenever we do this class, like everybody wants to attend this one. So what is analyzing multi-family properties? Right. I don’t know.
James, what would you like me to put in it to make it boring for? No one ever wants to see it again.
People love that class. Like, every time we teach you, it’s like packed. I love it seems like storytime with deal analysis and spreadsheets. Yeah.
I think in the past, I mean, a lot of what the draw is, is that I tend to do a case study of a property and it’s been a continuation of a case study. So maybe that’ll happen again this year. And maybe I will switch to a different property and kind of show you the first two or three years of a different property and and what’s happened. And so it should be interesting because in the past we’ve talked about a property that I own in Greeley where, you know, bought it.
Rents were at nine thousand. And basically, you know, we’re able to raise the rents to like seventeen thousand in the course of a couple of years. And so, you know, those are the deals that I think are super amazing and super profitable and huge wins. And, you know, part of that is maybe how do you find those deals? So maybe I’ll slip that in there and teach for a classes that night. Oh, boy.
Oh, boy. All right. Cool. So a couple of other announcements.
We have a new platform for suggesting what class you’d like to see or for voting on other classes. People have already suggested to determine what we end up creating in the future. I do have a long list of classes I am probably going to be presenting and creating new stuff on. But your opinion does matter because if you tell us you don’t want to see certain classes, we will not teach us. And if you suggest new ones that look really, really interesting, we will go ahead and teach them.
So if you go a real estate financial planner, dot com forward slash suggest, you’ll be able to either suggest brand new classes or vote on what other people have suggested there as well. So introductions.
If you guys would introduce yourself, make sure you turn on that. You’re sending the messages to all panelists and attendees on Zoome. And so if you go on there and change it to all panelists and attendees, then it’ll go to us and everyone else.
And where are you from? Who are you? Where are you from? And then what is your best tip for inspection sites, classes, all about negotiating winwin inspection. So you just share what your best tip is. That’s great. And Brian, we’ll monitor those crazy chat window things for you to be able to do that. And then, of course, if you do have questions throughout the presentation, please do let Brian know the chat window and he will monitor those and let me know if there are questions we should definitely pause to answer or if you just have to answer himself via text or VHF.
So awesome. Thank you very much. There is a podcast. There are about 40 episodes on the podcast right now. If you go to real estate, financial planner, dot com forward slash podcast, or if you do a search for the Nomad Real Estate Investing podcast on your favorite search engine, it should show you like Spotify and iTunes and Stitcher and tune in and all those other places where you can listen to the podcast. And Brian wants me to always say on the screen that the names are reversed and that’s he is the one on the left and I am the one on the right.
Even though the names say that I’m the one on the left and he’s the one on the right. And it’s really hard to tell us apart. I mean, he’s the one with the beard and more hair in his head.
So I really think you could just do it, like flip rotate the picture. And it would be your.
Your rogue shirt would then be backwards. So they often talk about that would be hidden under the title. So the next few slides are not me. I have no idea what it is coming here. So what is this crazy?
You know, you’ve looked through this. I didn’t. I really just takes it. So this is chart.
James loves charts. Does it seem like I do what my chart says? True.
James sends me like 400 charts a week and I pick, like, the best six to show you guys or something like that. And tonight, I won’t actually make him comment on this stuff that he sent me because he thought it was important enough to send me. So we’re going to find out why. Get a lot of those.
This one you’ll see a little bit about when I show you delinquency stats from the property manager as well. Basically, April sucked.
May was a better and then June is basically the same as last year, which is super encouraging for paying rent. However, another reminder that every month is still a an unknown. It is just I added tenant, you know, email me this morning and say, hey, I’ll pay rent for the month, but I can’t pay it all today because something happened. And I’m like, OK, so this is encouraging. But I think we’re also going to come up against the end of the extra six hundred dollars a week and, you know, other unemployment benefits or other Kahrizak benefits that change or end.
And so who knows what happens. And as we see an uptick in the covered cases. Who knows how much more of an impact this is going to have. We’ve been saying we’re not clear if you’ve been listening to my weekly covert update for any amount of time. I’ve been telling you, we are not done with this. If you look at the graph of the US, we are not done with this. So this is encouraging. It’s good for now.
But I would still say get your reserves in order and be prepared. Next slide. I would agree on the reserves. This is one of my favorite ones that James sent me. I’m not sure how these people actually still have employment opportunities after posting charts like this. How would you like to skew the data today? About half of the U.S. population is jobless.
Oh, alarmists like.
Yeah, you’re right. My nine year old, my eleven year old and my 13 year old all don’t have jobs.
What is down the chart? The only way this chart could be worse is this. They said of all of the mammals living in houses. And they include dogs and cats and journals and hamsters and all that.
The ones that one unit that somebody that we both know that had like rats, they were out at scale right there.
They were really rats. Yeah. So this is this how you, like, skew the statistics? You count every human being instead of, like, people working?
Yeah. I mean, it’s just dumb at this metric. Meijers employment of the entire adult population.
So what does it do to the bottom? It’s adult population of sixteen plus it’s what it’s measuring.
Yeah. That’s still stupid. Right. Look at Ryan’s face when he realizes, oh, I didn’t read this recovery.
This guy’s a bill, a duck. This is not how unemployment is. Is whatever that where it is. How do you say stupid worker that rhymes with treasure?
If this measure like this is like Tevye, the attention to detail person reading something, let’s work like, oh, I guess if we read what this chart is actually showing, we probably would be a little bit sorry.
The bill doesn’t matter. Like it’s just dumb, but like. Yeah. Anyway, next slide. This is James’s chart.
He sent both of these in the same email. This is basically the same chart. Just zoomed in a little bit.
But James, why is this important? Because it shows that we are seeing a increase in property values, despite everyone anticipating that after Koven, we would see a decline in property values.
Yes. Exactly. So if you’re waiting for a discount, you better.
By now, the interest rates are still low. Next slide. James, I know you like this chart. I do like this shirt. So why don’t you tell us why this chart is important, especially with the red text in there? I was I was unclear if you put that in there or if it was just in there.
I didn’t I didn’t fit that in there. So this is showing, I believe, the 10 year annualized compounding rate of return for the S&P 500 over a very long period time. So goes all the way back to 1880, apparently. And it shows you what the 10 year annualized compound rate of return is. And I think one of the things they’re pointing out is that, you know, things need to go well according to the the red thing here in order for us to maintain these very high rates of return.
And that’s I was interested to see that, you know, because Brian sometimes talks about these periods of time when you have these really negative returns.
And even like the the worst 1920, the 1940 dip, the 1970 to the 19th, early 80s dips, you know, all those are relatively mild. What do you have, a 10 year annualized versus the return? And we’ve seen some really high returns like the whatever that is, nineteen thirty five ish 1930 somewhere in there and those other peaks. So I just found it to be an interesting chart showing you a long term history of S&P 500 rates of return.
Yeah. Next slide, slide. Code 19 update, next slide. I don’t even know why this as you can just click. So new happenings. There’s two slides for the cover 19 update.
That’s probably gotta go back there. Go.
Colorado unemployment claims they were under.
I’m not sure why that says was I should say, were they were under 10000 again for the week, which is the first time in several months that it’s been that many new claims or less. So that is a positive.
But the governor is also re closing bars and nightclubs again after the uptick in 19. For those of you that aren’t like reading the news articles and you’ve seen the uptick and you’re like, oh, yeah, that takes probably from all those protests because a bunch of people were next to each other.
Turns out they’ve done all the tracing. Guess where they came from? Parties, bars and nightclubs. And so wear a mask that will help commercial market. Man, I. I have to say, I am glad I do not own a lot of like office space or retail store space because this stuff is getting pounded right now and online shopping is just continuing to grow. I think first quarter, Amazon’s profits were up twenty six percent year over year from last year and that’s first quarter.
That doesn’t even include like they’re probably up one hundred percent for the next quarter with all the Koven stuff and everybody being in lockdown and staying home and ordering everything they need. But retail was already on life support, like retail being shopping centers and the Fort Collins Mall and, you know, other other places where. No, it goes right. But it’s it’s it was on life support before Kovik 19 happened. And now it is just it’s gonna be really, really difficult.
So part of the article I read in one of them was, you know, there’s always a bunch of new chefs who want to start new restaurants and, you know, new business owners who want to start new stores. And it’s like Yelp. And a lot of those just not don’t end up being successful anyway. So it’s a really tough, really tough spot to be in if you own a lot of stores, retail space or office space. And all the workplaces are proving that you can, in fact, work at home and be more productive.
So whether or not they actually admit that to themselves and let people stay at home and work or they force them to go back. Like many companies are remains to be seen, but. Last up, Colorado is in the top 10 states for rank election in June. Or maybe it was May. I don’t even remember. But recently. And so this is we were at ninety five point four percent from this study that was done, which is really good for being in a Koven 19 pandemic and having lots of people unemployed.
That’s pretty darn good. So hopefully we will stay at that kind of top 10 states. Next slide. This is the delinquency update, my last slide, and then Tammy can teach the rest of class tonight. Property manager delinquency. I didn’t have numbers last week, if you noticed. I just didn’t get them in time. Turns out they actually sent him like I could have read them off the email, but I have my email open while I’m in class.
So. June 24th, last week, it was three point three percent. This is dollars that are owed still. And as of yesterday, end of the month, it was two point one six percent. Everything below that is just reference for May. So basically, June was better than May. May was better than April. And all three of those months suck in comparison to pre-K over 19. So number of units that owe rent. This is basically Oza.
Oh, one hundred dollars or more. Last week it was four point seven five. This week, it’s three point five. We do the hundred dollars or more because a lot of the really small utility stuff that’s like a trash bill for 18 dollars come in the middle of the month. And so it looks like they’re delinquent. That’s why we do over one hundred dollars.
And then last week, they were seventy nine point two percent released. And this week we added a decimal place and it’s eighty point three five percent pre leased. So getting there, you know, this weekend right now is a huge turn in the summer season. So lots and lots of turns going on from last week for through the next to like 10 days, really. So if you’re if you’re turning your property, good luck. But things are going well, I think really right on pace with last year for pretty leasing.
So that’s great. That’s all I got.
Awesome. Well, I thank you for doing those updates. Appreciate it.
So I’m going to go and talk about negotiating win win inspections for maximum benefit. And I have Tamae on the line as well. She is there to correct me when I say something incorrect. That’s basically what she does in real life every day in my household. So she’ll do that for tonight’s presentation.
It’s not as if what you said is just true. She didn’t correct you. So it must also be true.
She basically does that. All of it. I mean, you know this from, say, stuff you hear in the background. That’s not true. So. So I’m James or a real estate broker with your castle. So tonight’s presentation is all about the inspection process in the Colorado Real Estate Commission approved contract. I did see a message from somebody who mentioned that I’ve known many people who didn’t get inspections done while buying a new house. And Tammy will correct me if I’m wrong, but one of the reasons why is they don’t have the typical inspection clauses that we have in Colorado real estate.
She contracted. So the inspection process for buying new construction is vastly different than what we’re gonna go over tonight. So when we do this presentation, the next time, we should probably add a slide about new construction and how it’s different.
But there’s a reason why a lot of folks don’t do their inspection when they buy new construction. And we usually recommend to our clients that they get an inspector to walk through, you know, month eleven or so when they buy a new construction property so that they can make all their final warranty claims and make sure that they have a chance to review that before other warranty expires. 81 say about that. Right. OK.
So before we get into details tonight, I want to just comment on that one section of the contract that relates to the inspection, but isn’t exactly the inspection stuff. And it’s section twenty nine of the Colorado Real Estate Commission approved contract. And that’s a section on good faith. So I’m going to read you the quote from what it says in the contract, and then I’ll give you a definition from Wikipedia. So this is me reading from the contract section.
Twenty nine, good faith buyer and seller acknowledge that each party has an obligation to act in good faith, including, but not limited to exercising the rights and obligations set forth in the provisions of financing conditions and obligations. Title insurance, record title and off record title. New ILC, new survey and property disclosure inspection, indemnity insurability, due diligence and source of water. And Wikipedia goes on to say that in contract law, the implied covenant of good faith and fair dealing is a general presumption that the parties to a contract will deal with each other honestly, fairly and in good faith so as to not destroy the right of the other party or parties to receive the benefits of the contract.
And the reason I bring this up really early on is I think that there is a belief out there and it’s a false belief that the inspection is sort of a catch all I can get out of the deal for whatever frickin reason. I want to just say, yeah, I’m getting out on inspection. I could change my mind, I could decide I want a better house or do whatever it is I want to do. And that is absolutely not true.
OK. And that you can be called on operating in bad faith if you decide you’re going to terminate and you get caught. So just be super, super careful about that. And we’re gonna go into some more detail a little bit later. But I just want to let people know that this is not the inspection. Part of the contract is absolutely not a get out of the deal free card and that you must object based on a legitimate reason. OK.
So I made this cool little flow chart, because I want to give you a big picture overview of what is happening during the inspection process, because we’re going to drill into a lot of detail. But I think it’s going to be helpful if you understand kind of like how all these pieces fit together and how they kind of interact with each other. So the first part of my little inspection flowchart is when you go out and you look at a property you’re considering buying.
We usually look at the different parts of the property. Then we’re gonna look at the kitchen and we’re gonna look at the bedrooms. We’re going to look at the carpet. We’re gonna see how like the exterior, unless there’s a lot of snow and we’re not walking around the property in a lot of snow. You know, we’re gonna glance up at the roof. Some cases we’re going to look at the types of windows they have. So we’re gonna do like a a layman’s version of inspecting the property during the showing itself.
And during this time, we’re going to make our offer based on the knowledge we have and what we can see. In my opinion, it is not fair. If you see that the property, that the carpets are threadbare and that they’re going to need to be replaced for you to go and then negotiate new carpets on an inspection, if you saw that the carpets were threadbare when you walk through the property. And so there’s a bunch of things like that that you’re not supposed to do that’s not operating in good faith because you knew about that when you made your offer.
And you should make your offer based on the condition of the property that you saw. OK. So there’s the inspect the property during the showing. Then you go and you make your offer on the property. You get your contract accepted. Then after you get your contract accepted, then you are going to go and inspect the property. You’re going to go into a lot of detail of what that means. Then from there, you have three choices based on your inspection.
You could either object, you can terminate or you can accept the property as is. And I’m going to start with accept the property as this, because it’s the simplest one. If you accept the property as is, we sign an inspection resolution form that says I accept the property as is, and then that becomes the end of it. Basically, we’re done. If you decide you want to terminate, which is another option you have, we’re then going to submit a notice to terminate and an earnest money release form, provided you didn’t give up your right to get earnest my money back.
And in some cases, when we write a contract, you are you are voluntarily saying as part of your negotiation, when you get the offer accepted, that my earnest money is not refundable. In a lot of cases, earnest money will be refundable depending how you write the contract. But in those cases, we’re going to say we’re to submit a notice to terminate and an earnest money release form. And then the third option was outgoing. The third option is where you object.
And the objective one is probably the most complicated one. So once you object, you object by submitting an inspection. Objection. Notice which puts the other the other party, the seller on notice that says these are the things that are unsatisfactory to me. And so based on those, then there’s a negotiation between you and the seller. Primarily your agents. And it basically says, you know, the. This is what I object to. And the seller says, I’m willing to fix these things.
I’m willing to give you a concession or whatever it is. And so there are really two things that can happen once you have the negotiation. You can either come to an agreement, you can have a resolution, or you can not come to an agreement where you have no resolution. So if you don’t have a resolution, then you can terminate. And we do a notice to terminate. Ernest may release or you can you can decide, hey, listen, we didn’t come to an agreement, but I still want the deal.
So I’m going to withdraw my inspection. Objection notice. And I’m going to continue on with the deal. We’re going to go into a lot of detail about that later tonight. The other option is you can come to a resolution and if you come to a resolution, then we have an inspection resolution and or amend extend the contract where we change the terms of the agreement or you can withdraw the inspection. Objection.
Notice if you come to an agreement and you didn’t have to do anything. So those are kind of the cases where we could do that. Anything you want to comment there, Tam? I saw you, like, raise your eyebrows.
No, I’m just gonna say you have a question. Somebody has asked. What if you don’t or can’t see the property before the contract is signed? Because it could be.
Yeah. In most cases, we are able to see the property. But in those rare cases where you’re unable to do it or you’ve made a site, an offer sight unseen, like it’s a it’s a very competitive market. It’s a multi-family property. And, you know, Bryan comes in over the top and bids a hundred thousand dollars above asking price because he knows he wants it. The numbers make sense. And he hasn’t even seen the property that, you know, in those types of cases.
Then you are free to negotiate during the inspection period. Now, if I’m on the sell, depending on how you operate.
I was gonna say that depending on how the seller would like if I was representing the seller in that, I might say to you, hey, you know, I’d rather you go and see the property. And so let’s kind of coordinate that or you may come in and say, listen, I really want the property. I’m going to do a light inspection. I’m only going to objective things that are major help, major health and health and safety type things in a really hot market in the software market.
All bets are off. I mean, you can negotiate anything if you haven’t you know, you haven’t seen the property. You’re doing that. That’s your question, Matt.
Yeah, I mean, I was gonna to the same thing before he typed it, which is are you gonna cover the case where you know and it’s more prevalent now with covered 19, as Matt points out. But like exactly what we just talked about, which is, you know, sometimes the multi-family properties. It’s like, hey, I’m not gonna be able to see it. I wanna make sure I get under contract before 20 other people see it.
So, you know, and talk about what that inspection kind of clause in the contract like that, I would typically write. Are you gonna discuss that tonight?
I wasn’t gonna go into that specific example. We could try at a slide for that in the future. But let’s cover it right now, because I think it’s appropriate in a case where you’re you’re unable to see the property and you’re coming in, like over the top because, you know, you want it and you’re trying to get there before other people are able to even see the property. In a lot of those cases, you might you might voluntarily say, I’m going to do a light inspection.
I’m not going to object to, you know, cosmetic items, or I’m only going to do major health and safety type things. And in those cases, that’s going to be part of what gets your offer accepted. Right.
However, you could try to come in and say, OK, I’m going to bid twenty five K over asking price and I’m going to I have not seen the property and you sort of reserve your right to do that inspection. But if I’m on the seller side, I’m probably negotiating hard to have you limit that or saying hey you got to really see the property you haven’t seen at all.
Yeah. And like, typically for what I’ve done is like, hey, you know, I, I in the contract, I’m not going to object to any anything unless it costs more than like one thousand or two thousand dollars. Right. I can actually put a dollar amount to make this seller feel more comfortable like and I tell them, hey, really what I’m looking for is to make sure the building’s not fallen down in the next, you know, ten years.
The foundation is not messed up. You know, the boiler that’s forty thousand dollars is still working. Right. I’m not looking for a drawer in unit three is broken and the stove doesn’t work. Like I’m going to handle that. That’s. I got that.
So, yeah, in some cases, you know, if you have a reputation or the agent you work with has a reputation for fair dealing and they can personally vouch for you. Listen, I’ve closed a bunch of deals with this guy. You know, he’s not going to nitpick you and a whole bunch of little stuff. I think that can go a long way, too. And sometimes that’s not written in the contract. It’s sort of like outside the agreement.
And some ways, which is interesting because, you know, you could there’s some danger in that.
But I think that it does happen in the real world.
And for those of you that don’t know, James and Tammy are those people they buy and sell help you buy and sell houses. That’s my job. That’s told dollars.
That’s right. Although I tried to get together to, like, take you out to lunch, you refused me. You tried to get me sick. I did not have someone else’s agent. Arizona do a lot of video chat shows. So I have an out-of-state client. Yes. I mean, this is unusual times, although even during, you know, pre covered stuff, vacations, we’d have to say buyers, they would buy largely sight unseen and they would hire an inspector and the inspector would call them and they’d see the inspection report.
I mean, that definitely happens. And so this is sort of the most common cases, but it’s definitely not a catch all for every possible situation.
And if you’re doing inspections where you’re not at the inspection, you best have an inspector you trust.
Yeah, I think you should be there. You should definitely show up for inspection. Yes.
OK. So just big picture of where we’re coming from. So this is the buying process overview, the little visual I used to show you where the processes is. So there’s the first meeting where you meet with your real estate broker. You sit down to discuss your goals. You’re financing, you know, what kind of properties are you looking for to set up your property search? All that stuff happens at the first meeting. Then you have the stuff you need to do before the real estate broker is willing to take you out for properties.
You need to sign your agency agreements. You need to, you know, get your preapproval on your loan. You need to have set up your property search, know all stuff like that. That’s for a preshow. It’s then there’s the stuff at showings and part of art. Tonight’s class does cover the stuff dealing with showings because that’s when you look at the property ahead of time, although I’m really not going to go into detail there. But that does happen for as part of the inspection.
The next part is writing your offer, getting your offer accepted, and then after that is the contract to close. And that is really where we’re going to focus on tonight. Is that contract the closed portion where you’re negotiating your inspection? Then there’s the closing where you actually show up and you pay your money, you sign all your documents, you get ownership of the property and then all the stuff at post closing.
So this sort of talks a little bit that what we’ve been discussing so far, what level of inspection are we doing prior to going under contract? So primarily we’re looking for obvious and I can’t see with the video in front of it and especially large dollar inspection issues, including like obvious inspection issues in your initial offer, you know, major stuff that you think is going to have with the property. You know, like people sometimes ask me, James, are you, like, looking under the sink to see if, you know, there’s a little drip going on there during your initial walkthrough?
I’m not. I think that that’s like a different dollar amounts of negotiation. Am I doing that? Like I have my inspector do that during the inspection? Absolutely. But am I going and look into the sink and you’ll feel limit making sure it’s all wet? Probably not. Am I going to go in the crawlspace personally? Probably not. Am I going to crawlspace ever? Probably not. But I mean, you’re gonna get your inspector to go in the crawl space there.
Going up on a roof? Definitely not. But looking at major stuff and making sure that it fits your criteria, you’re going to go do that. And just as a aside comment, if something doesn’t meet your investing criteria, you know, there’s no you’ve got a basement bedroom in the basement.
Bedroom is really nonconforming, you know. That’s something you objected on after you go into contract. I don’t think so. I think that that’s something you see when you go see the property ahead of time and you’re not objecting on that. I don’t think that’s a good faith. Sort of like a negotiation because you knew about it when you went in there. So unless you’re doing it from out of state and that’s a really unusual situation. So it’s not acting in good faith to ask for new carpet.
If you saw the carpet before making an offer, that’s sort of the idea behind this. OK, so dates are important. We’re really ruled by the dates in the contract. And if you miss a date, it could mean that you’ve given up your right to object, where you’ve given up your right to terminate, where you’ve given up your right to actually come to an agreement and your contract could be cancelled without you really wanting it to cancel. And so we’re going to be primarily discussing just three dates in the contract.
There’s a whole bunch of other ones, and we cover the contract in detail. We go over those. But the ones we’re going to talk about tonight are inspection. Objection. Deadline. Inspection. Termination. Deadline and the inspection resolution deadline. So for each one of these, I’m going to go into what each one is as it’s defined in the Colorado contract to buy and sell real estate. What are buyers typically doing for each? Like, what are your.
What’s your job for that particular deadline? And what I as your real estate broker, are doing for each of those? And I really should say what Tammy’s probably doing for this, because that’s really how it works in this miss relationship.
So. So this is an example of the dates and deadlines section of this kind of section of the contract. And I show you that for the inspection objection deadline, the inspection termination deadline and the inspection resolution deadline. What we would typically put in there and of course, every contract a little bit different. But I would say for the majority of the ones that we would write up for a kind of a standard contract, the buy and sell, these are the dates we would normally recommend.
We would normally give you about 10 days after your under contract, the contracts accepted in order to have your property inspected and make your objection or to terminate. And then we’d give you about three days more once they’ve received the termination to be able to negotiate the terms of a resolution together. And that’s typically what we would use for that. Could you define MEAC? Yes. So MEAC is defined actually in the contract to buy and sell itself. It’s right below the dates of deadlines section, but it means mutual execution of the contract.
It’s when both the buyer and the seller have both signed the agreement and it’s a completely valid, fully executed contract itself. That’s MEAC. And so as soon as that happens, that becomes MBC and then the next day becomes MBC plus one. So the day after you’ve contracts become executed, it’s MBC plus one. So MEAC plus 10 is 10 days after the contract has been executed. So Section ten point three, oh, I wanna show you on the spaceship.
So this like if you’re looking at the contract itself, it tells you which section this day actually applies to. And so the inspection objection of section termination inspection resolution deadlines are all Section ten point three. And so we’re going to deal a lot with Section ten point three of the contract.
Hey, before you go on. One thing I want to mention, because you keep using the example, if you walk through the unit before you’ve made an offer and you notice the carpet is terrible and it’s going to need to be replaced as a part of your offer, you can have an additional provision asking for the carpet to be replaced. That’s plenty fine for good faith. However, if you then on inspection say all of I and know the carpet was bare, even though you’d seen that it was bare.
That is not acting in good faith.
Yeah, that’s a really good point. I’m glad you brought that up, because that’s true. We either make the adjustment in the price that we’re offering. So if you know the carpet’s bad and they’re asking for four hundred thousand for the property near like, you know, I don’t think it’s worth 400000 with the carpets. Great condition. I’m going to offer them, you know, three ninety five or three ninety or whatever it is, because I know I’m going to need to replace the carpet.
Well, you may or may not get that property if with the seven other offers they have above asking price. But if it’s not, if it’s not a high demand type property, you may actually be able to negotiate that and say, yes, you’re right. We will actually allow you to buy the property for three ninety five. We know the property needs carpet or maybe they say we’ll give you a carpet allowance or whatever it is that you can negotiate and you would normally negotiate that as part of your initial offer, not as part of your inspection.
OK. I Section ten point three, the right to inspect. And this is from the contract to buy and sell real estate. And in general tonight, if I have like a quote and it’s italicize, as I look at this, I didn’t italicize they actually come from this. If it Sude quotes it, that’s italicize. It’s usually me quoting the actual Real Estate Commission contract. And so that’s sort of the formula for if you’re kind of looking at slimier, wonder what’s going on.
So Section ten point three inspection, I’m reading from the contract that unless otherwise provided in this contract buyer acting in good faith, there’s good faith again, has the right to have inspections by one or more third parties personally or both of the property and inclusions. And then sort of the finding, both those things as part of the inspection at buyer’s expense. Let’s kind of break this down. Good faith. You can’t terminate for other reasons and call it inspection, too.
You can’t change your mind. You can’t say I found a better property. So I’m going to kind of like terminate based on inspection. Has to be like a legit reason to terminate. One or more third parties, the inspector, if you hire one, any contractors that you may need, if you’ve actually had the property inspected, so maybe you get your inspector in there and your inspectors like, hey, I’m not a mold expert, but that black stuff in the bathroom, like above the shower, that looks like mold to me.
Or, you know, there’s some really dark, fuzzy looking stuff in the corner in the attic may want to actually have, like a mold guy come in here and do a test or, you know, I can’t quite get up on the roof, but it looks pretty rough up there. Maybe you should get a roofing contractor in to give you a bid or, you know, my eyes have been watering like crazy walking through this house. Maybe you should have this thing tested for meth.
It kind of makes makes me a little bit nervous being in there. So, you know, those types of things are opportunities for you to get additional contractor specialists to come through and either give you an estimate for how much it’s going to cost or give you a validation. That is, there is not a problem.
Pet urine also makes your eyes water. If there’s enough of it that you’re in does. Yeah. Horrible. I remember a really a really rough house. Were you in that one with me, like isolated outside. I took the name of a yes. It was in Loveland. Right. Yeah. Although there was another one that I bought where we walked in and walked out and were like, who. And you bought it has a duplex. It’s a very large duplex.
Oh, I do know your type that had needles in it. Drug use needles. Yeah. That’s nice. Over overdose list. OK. What are more third parties. So inspecting your contractors if needed. What about your potential new tenants? Brian, do you think it’s legitimate for you to say, hey, it’s Syrie inspection period? Why don’t I just have my tenants come through and see if they want to rent the property during my inspection? Is that OK?
No. Yeah, I don’t think so either. I think that’s not operating in good faith. You might be able to get permission if you call up the real estate broker or as part of your additional provisions when you’re making your offer, say, listen, I know I want the property. I’d like your permission to be able to market the property before I take foreclose on it. I would like to put a sign up if you can get permission to do that.
Hard to do in this market. But maybe I’d do that. Maybe I’m allowed to market that on Craigslist, made them let to use the photos from the listing, get permission in writing for doing that, and maybe you’re allowed to show the tenant the property if it’s vacant, you know, while the property is being inspected, maybe you can negotiate all that ahead of time.
Any comment on it? And maybe not. And maybe do it and get caught. And then you’ll have to ask for forgiveness. No, we do not. Because you do it, get caught. And ask for forgiveness. That is that is not acceptable. That’s it.
I should give you everything. That’s what happened. That’s what happened to you in one case. Yes. And it wasn’t like you were showing the tenant the property. You just happened to use photos. And what sparked me ahead of time. Yeah. Yeah.
OK. So property in occlusions. So it’s not just the property. It’s also the inclusions. We’re going to cover this detail in a few slides and it’s at the buyer’s expense. So if you need to hire an inspector, you’re paying for that. If you need to hire, you know, to get a roofer to come out there and give you a roof certification that’s on you. If you want to hired someone to do a mold test, that’s on you as well.
So it’s all your expense of doing this. If you decide to do it, you know, here’s an interesting case that comes up here, temp. You know, your dad was super handy. Could we have hired your dad to come out and inspect the property? Does it have to be a licensed inspector? No. So your dad could have came out and inspected the property. It doesn’t matter if it’s your father, your uncle, your brother.
If they’re coming in, they’re giving give you your opinion about something by any more third parties personally or both. It doesn’t say that to be licensed. Doesn’t say that the insured. No, it doesn’t say anything like that. Now, you are responsible as the buyer. If you do any damage to the property during inspection period. So if your dad comes out and you know he’s not really qualified, he ends up breaking something. You’re paying for it as a buyer.
That’s your responsibility. OK, continue. From the contract, there are five items as to what you can expect if one is I don’t have one.
The physical condition of the property, including but not limited to the roof walls, structural integrity of the property, the electrical plumbing HVAD, which is air conditioning, heating and other mechanical systems of the property. So this is often what most other people think of when we talk about inspections. This is stuff you would normally expect. Number two, though, the physical condition of the inclusions, not just the property itself, but anything that’s included with the purchase of the sale inclusions are written out like what the inclusions are is in Section 2.5.
So I’m going to slide over where to look at Section 2.5. Then when really come back and continue on, what else gets inspected in the property. So let’s see. The next couple slides is about inclusions. Now Section two point five, the purchase price includes the following items inclusions. I’m going to go through what they are here. Section two point five point one inclusions attached. These are all things that you can inspect. Right. If attached to the property.
At the date of this contract, which can or cannot become important, right? If we have we see something when we make the offer of the property, the date of the contracts listed. And it’s there at the property if it was attached. Then we have the right to inspect it. The following items are included and less excluded under exclusions, lighting, heating, plumbing, ventilating and air conditioning units. AC sorry. TV and tennis. Oh.
Oh yes. The TV antennas inside. Telephone network and coaxial cable wiring. Connecting blocks. Jacks, plants. Mirrors. Floor coverings. Intercom systems built in kitchen appliances, sprinkler systems and controls built in vacuum systems, including accessories. Garage door openers including and this is like a sample of a contract that was written, including two remote controls that we wrote in and checked. The following are owned by the seller and included leased items should be listed under due diligence documents.
So if they check this off, none. Solar panels, water softeners, security systems, satellite systems, including satellite dishes and if any additional items are attached to the property after the date of this contract. Such additional items are also included with the purchase price. So if they add something later that’s included, we can inspect all of these things as part of our inspection because. We can basically do inclusions there. So continued on section two point five point two inclusions not attached.
If on the property, whether attatched or not, on the date of this contract, the following items are included unless excluded under exclusions, storm windows, storm doors, window import shades and the awnings, blinds, screens, window coverings and treatments, curtain rods and drapery rods, fireplace inserts, fireplace screens, fireplace grates, heating stoves, storage sheds, carbon monoxide alarms and smoke fire detectors and all keys. And of course, Tammy likes to joke.
I don’t. I objected to the keys, so I’m terminating this contract. I’d like to go buy something else because the keys are unacceptable to me. So let’s game.
You have a question about trees that were there on the day of the contract. You put down on the date of the sale.
Oh, that’s problematic. Yeah, that sounds like that sounds like a lawsuit. Maybe you’re like thinking that he was going to cost me a lot of money to move. Yeah. If that’s the case, if there was to your benefit, then obviously that’s that’s true. But if it was something you really wanted there. I have a feeling that’s a lawsuit waiting to happen. It’s my guess. But we’ll call it Go Call, you’re an attorney. So, again, we can include we can inspect all these items and object to them as part of our inspection.
Continuing on with what is also considered inclusion, personal property. Any personal property must be conveyed at closing by seller free and clear about taxes except personal property taxes for the year, closing Lean’s and encumbrances except none. Conveyance of all personal property will be by Bill Sale or other applicable legal instrument. And this is really not applicable for our inspection stuff. Two point five point four other inclusions. The following items, whether fixtures or personal property, are included in the purchase price.
And this is the part of the contract where we would normally, when you’re buying your property, include all the stuff that you think you’re getting to be super clear about what’s included and what’s not. Stuff like currently installed, electric range, oven, dishwasher, refrigerator, the clothes washer and dryer and the microwave as just some examples. And so if you wrote those in here, those are also able to be inspected by you. OK. And you can object to him as well.
Two point five point five parking and storage facilities, and Tammy likes to point out that this is typically used for condos and townhomes. We don’t usually see people list out like an attached garage. That’s already part of the property or or even a detached garage. That’s obviously part of the property itself. So normally we would only use these if it was like a condo. And as part of you purchasing the condo, you also got use of parking lot number or parking lot space number fifty four or C seven or no.
A detached garage bay or whatever it is you’re getting there. And that’s where you would normally put this in here. So it says the user ownership of the following parking facilities. In this case we did an A and they used or ownership of the following storage facilities. In this example, we did not applicable as well. And then here’s a really interesting thing. Our contract actually says a note to the buyer. This is almost like a hey, P.S. buyer, pay attention here.
This is like I’m talking to you specifically. If exact rights to the parking and storage facilities is a concern to buyer, buyers should investigate. So if you’re like thinking, oh, I must get a parking lot with this purchase, you should actually double check and triple check that to make sure you really do get what you think you’re getting because it may not be what you think it is. OK. That’s the contract is actually talking straight to the buyer when it does that.
So we can, as part of our inspection, inspect these and object to them as part of our inspection. The contract, does that include that note to that buyer as well? OK.
So that was my little side thing about what is considered an inclusion because we can object to any of those things. What else can we expect? This is going back to that list of five things where number three. Number three is service to the property, including utilities and communications systems or services systems and components of the property, including heating and plumbing. So if you’re buying a property and you work from home and you can’t get fiber optic lines to your property and have super high speed Internet, this is your chance to object.
This is a valid objection. If you can’t do that, if your cell phone doesn’t work at the property. You can object based on that. And water is becoming an extremely important issue in Colorado. Extra probably all over the place. But we’re really emphasizing it in Colorado specifically because we think that there could potentially be shortages in the future. And so your rights to water become a major issue. So if you are concerned about that, you can evaluate that during your inspection period, period, and object if you don’t like it.
OK. So our question here is, you know, maybe if you watch this. Please do. So my inspector will only inspect appliances at all if it’s written in rescuer, or are you just saying I have the right to inspect those things?
So my inspector will only inspect appliances and other things if it’s written in, or are you just saying I have the right to inspect those things?
You have the right, whether you’re inspector as part of the service that they offer does or does not do that is up to them and you’re in negotiation with them. So they may not, as part of their normal inspection, like run the washer and dryer and make sure that it’s working or run the dishwasher, make sure it’s working. You know, a lot of the inspectors we would normally recommend would do the dishwasher, but I’m not sure every single one of them would do like a washer and dryer, like clothes washer and dryer.
So it’s really up to you to negotiate that, make sure that they’re working.
I don’t think that’s quite what she’s asking and anguished asking is if it’s not written in the contract. Can my inspectors still inspect the appliances? Yes.
So basically, it says here inclusions attached. And it shows here like stuff like leaded heating, plumbing, ventilating air conditioners. TV’s antenna’s floor built in the kitchen appliances. Yeah, Milty.
And kitchen appliances. Right. So if it’s not built in and it’s a microwave on the counter, you’re not in the section, you’re down like one or two slides. Yeah, if it’s like a bike with currently installed. Oh, yeah, this section. So this is like when we write the contract, we would want to include anything that was not physically connected to the house is not already attached. Out of an abundance of clarity to say, hey, listen, we’re expecting that you’re leaving this stove here.
And if you’re not, we should know about that before we come to an agreement, signed the contract. And so we’d normally put this in here in writing to be clear.
And I would say you have listed in exclusions like the washer and dryer. They’re not included in the inspectors. Should not be messing with the washer and dryer. Absolutely. They should not touch with their system solutions. That’s correct.
Yeah. And then Kyle does that. Why is water rights becoming important? We have local mountains as a source.
It rains. Why is water at issue? Yes. I mean, I assume you’re asking that’s a legitimate question, but beyond the scope, because we definitely have water shortages going on worldwide. So despite the other stuff, I feel like technology’s going to take care of that. OK, where was I? And then you got some more questions in Boulder looking through the MLS. It’s pretty obvious that listing commissions are typically two point eight percent of the buyers and 2.0 percent of the sellers.
Sometimes they are different, but that’s what most people do. I guess it’s not a question. Yeah. Up here, it’s usually three and three. Yeah.
So. Well, so let me actually pull those words out of Brian’s mouth and say that commissions are negotiated between the buyer and their agent or the seller and their agent. And that there is a wide range of what people can charge. It’s completely negotiated.
And that we we see three percent, two point eight, you know, 10 percent. We see a whole range of stuff. But I would say three is a very common number, we say. So is two point eight. So but it’s a completely negotiated thing.
And then Matus, any recommendations on due diligence on water supplied by municipalities? I’ve looked it up and read where water is sourced. And I’d like for me. I like when I’m doing a contract and I’m looking at it. If it’s a Lake City water source, I’m like, OK, like, that’s pretty much my sniff test. If it’s like a well or I have some other weird water rights, I’m probably digging in really hard.
So the recommendation is real estate brokers is if there’s anything involving water rights that we need to tell you to get an attorney. Yeah. On the scope of our expertise.
Yeah. Water rights, oil and mineral rights, any of that stuff. Right.
And my life as a personal investor buyer, not as your broker, I will tell you. My belief is very similar to Bryant’s if it’s like a major water source. City level in city, Fort Collins, you know, those types of places. I’m fine taking the risk with the other group of people that are going to have that as a water source as well. Really what it is.
Somebody asked if there’s an easy way to find out what kind of normal conditions are in other areas. They don’t have any less access. No, but they’re supposed to be negotiated, right? So it’s to discuss and collaborate and say what a normal commission it is often considered price fixing. And we’re not supposed to do it. And so you you really should negotiate that individually one on one with your real estate agent. There is no standard. It is complete negotiate.
Now, every agent has the right to tell you. No, I’m not going to work for one percent, five percent, 11 percent, whatever it is. So it’s a negotiation. And whatever you and your agent agree to is completely up to you.
So, yeah, and I’m not a licensed agent, so I can tell you that every real estate transaction that I’ve done typically has been through three, which.
Which, oddly enough, is an interesting thing for you to say, because you would think if anyone was going to get a discount from James, it might be. Right. Right. It wouldn’t. Wouldn’t you? Would you think that’s true? And so would you be willing to say what you said again? Yeah, I mean, I it’s three and three. There you go. So if anyone’s wondered if it was that old thing, is it two and two?
That’s three and three. I’ll be back in two and two. I’ll be back in three. What is his name? I don’t even know.
I don’t know what you’re talking about, but yeah, it’s a TV show, The Dating Game, when he’d be like, I’ll be back in two.
Oh, I do know you’re talking about love connection or something like that.
Yeah, that I think is the dating game, but yes. And then another question for you. They’re just flying in Colorado require, well, inspections.
They don’t I don’t think they require them. But again, this is one of those things where if you’re dealing with any type of water rights or something like that, we were told as part of our continuing education that you are not smart enough, you’re not competent dealing with water rights. You should go have your clients buy pay for an attorney, Seim, who is knowledgeable about that and deal with it, because we don’t know. We don’t know. And we should not be giving people advice on stuff we don’t know.
And so you should be hiring attorneys.
Yeah. Chuck Woolery, tune in to Chuck Woolery. Thank you, Don.
I ask because I have a friend, another state who is attempting to offer without an agent, basically trying to offer below this price and saying that isn’t using using an agent, but ideally he is educated. So I can speak to this. I’m super educated in real estate. I still use James. I could easily go get my license. I still use James. Right. And I think part of this is when you go to a seller, you know, if it’s an off market deal to start with, it’s great.
But if if he’s already got an agent that he’s selling a property with or she’s selling your property with, they’ve already negotiated the commission. Right. And then it’s between the agents, whether it’s three and three and whatever. So really, at that point, you know, what are you going to do? You’re just you don’t have an agent, so you’re not well represented and you’re going to end up with no part of the commission. And the seller still has to pay because he’s already signed that contract.
So, you know, in a lot of cases, this just doesn’t work. And I can tell you, it doesn’t work like with new construction in our area either. Right. Because you think, oh, if I go, this is easy. They already have the contract. I’ll just go sign it. I don’t need an agent and I’ll be able to tell them, hey, I just want three percent or whatever lower. And they’re like, yeah.
No, it’s not how it works. So we might as well be well represented and just enjoy the benefits that come with an amazing realtor. All right, I’ll give you your 20 dollars later. Thanks. Now it’s one hundred now.
All take some of that back then out of that sleep seems a little steep for me. Fanny off on that one. OK, thank you. I appreciate it. So what can you expect continuing on? So we were talking about this high speed Internet stuff, which becomes a major factor if you’re like working from home and stuff. Cell phone service has become a major factor and water is becoming an issue as well. Those are things you can legitimately objective.
What else? No, for any proposed or existing transportation project. Road, street or highway. So if you think there’s going to be a new road, something’s going to be widened. You know, something’s going to be expanded. You’re going to have a river track or any type of bus station or whatever it is. You can’t object based on that. So if you have concerns, check with the city, county, state neighbors, any other resources.
If you have concerns about this during inspection period and you can object to this if it’s not acceptable to you.
Hey, James, if I go and I am walking through a house and my inspector is not qualified to test for mold and I look at it, I go, hey, I think that’s mold. But I don’t want to pay for another inspector to come. I just don’t want to deal with it. Can I cancel based on inspection?
I think you can, because I think it’s in your soul subjective discretion as to whether or not you think that’s mold. And so that is probably a legitimate thing for you to terminate on. And I think when you get to a slide here and a little bit where you don’t have to say to them, I’m canceling because of mold, you just say I’m canceling based on inspection and we’re not going to go into the detail about what in the inspection you’re probably canceling on.
So I think there’s a risk there of getting in trouble. And so we will just put that inspection. If it’s really because you believe that is mold, that is a legitimate statement in my mind for you, the objective. Would you agree with that?
Yeah, I wouldn’t throw in there that it it’s just that you don’t want to be out all that money in your concern. You could objectively ask the seller to provide proof for tests. They may say no, but that would be the other option because some people might still want to stick with the contract. If that’s really your only concern, they may not.
But I’ll use a different extra. I’ll use a different extreme example to that. And I’ll say math, right. You think that it is actually infected with math. And so you say to them, I object. I’d like you to get a math test done because I have a feeling that there’s math in the property. And that could be an example where, like, if it does come back positive, maybe you’re not willing to buy it. Right.
And so that’s a reason to do it for doing that. I you ask why, Elefant. Does the method man if if the property is infected. Sorry that I use infected.
I just kind of like talk. I don’t I don’t censor myself on this.
God looks at the root and is like, wow, he’s probably got a roofing contractor on up here. A lot of times we just put that on the injection. Want to move forward. And then sometimes the seller goes and gets their insurance person to come and, you know, looker. Yeah. You have to hire every person to follow up on everything your inspector points out. Sometimes you may, but not always.
And sometimes there’s a debate between two professionals. Right. Like one roofing contractor may say you need a new roof and the other one says dystrophies got another 15 years left on it. It’s totally fine. And then you got to say, well, the seller is unwilling to do anything based on their professional’s opinion, the stuff. My professional says it’s not bad. What are we going to do? Are you going to, like, terminate based on that or are you gonna move forward?
It’s really your choice as the buyer. In that case. Was there a question I missed? Because it seems like people were discussing the question, but I didn’t. I don’t know if I heard it. So we’re good.
OK. Ten point three. This is number five. This is the really interesting one to me. Any other activity, odor or noise, whether on or off the property and its effect or expected effect on the property or its occupants is unsatisfactory. And your soul subjective discretion. So there’s a wide range of extra stuff here. And very buyer friendly. Number one, any other activity, odor or noise, if you say this property smells like cows or this property smells like flowers and I’m allergic to flowers.
I could object based on that, whether it’s on the property or off the property or maybe it’s a little bit loud, like there’s an airplane that comes by or a train that goes by or whatever it is, its effect or expected effect on the property or its occupants in the buyer’s soul. Subjective discretion. So despite me giving you this crazy warning at the very beginning, telling you that this is not a get out of the deal free card, it’s it’s a really wide range of stuff that you can legitimately object to.
You just can’t say, I changed my mind and I want to buy another property. It has to be one of these things that you object to. It cannot be like something else. But there’s a wide range of stuff that you can objective. OK.
So here are your options on the next side of what many people would look at that clause as exactly that. Right. Get out of the deal. Free card. Yeah. Yeah. Oh, heavens, no.
But now I smell, you know, manure from the farm as I was, you know, at the house. And it was faint smell. But, you know, I smell an animal in the house. I’m done, right?
Yeah. And the question is, so do you have to tell the seller exactly what objective? And the answer is no. You just object based on inspection. Yeah. We’re not going into detail. And Tammy is going to say so there’s a question.
There’s a question over here. What about lender appraisal? Meaning they will have a say depending on the amount alone. I did. Deal goes south because the appraiser wanted the new route, which was definitely on the inspection report. Can you get out of the deal because of that? I can go ahead and answer that. So that would fall under your appraisal. Objection, deadline. You can object to a condition in the appraisal and basically tell the seller that they need to replace the roof because the appraisal requires it and a lender requires it.
So, yes, you can terminate or objective resolve on that.
And that’s a different timeline. That’s not usually this this early on the contract. Usually that’s a much later deadline where you have the appraisal deadline later on.
There’s also another question that you have to tell the seller exactly what you object to.
No. Yeah, it’s basically I get a lot of attorneys say you should let the inspection notice, do the talking. You check the applicable box and send it over and don’t go into a big story from there.
Yeah. And I’ll show you those forms here a little bit later. But you’re not going to do that yet. And if you guys are type in question, unless you want him to be private and you don’t want us to reveal your name, send him to all panelists and attendees so everybody can see the questions, please. Yeah. Thank you.
We did do that at the very beginning, but it’s possible people came in later. So temple three for one.
You can object. This is from the contract, the ten point three point one inspection objection on or before the inspection.
Objection. Deadline. Whatever date we put in a contract for that delivered to the seller. A written description of any unsatisfactory condition that buyer requires seller to correct or. And there’s gonna be some more here.
So you can object to any unsatisfactory physical condition that the seller must correct. So you could say whatever it is about the property that you don’t like, you can negotiate with the seller will do it, or one of these other two options. You can either terminate because you could not reach an agreement by inspection resolution deadline or if you say, OK, I wanted you to fix the roof, but you won’t do it, so. I was just kidding.
Let me go ahead and withdraw my inspection objection and I will continue on with the deal. OK. So you can try to have them fix something. But if they’re not willing to do it, it’s completely valid for you to say, I don’t want you to I don’t want to object anymore. I’m going to pull that back. I’m going to sign it and withdraw it. And you can continue on with the purchase. OK. Remember, the buyer must object on or before the inspection objection, deadline, or you waive your right to object or terminate based on inspection.
If you don’t hit that deadline, you lose the opportunity to do it. Dates are important. OK. So it’s really, really poor. Do you do that? So we’re going to go over a sample inspection objection here and a few slides, so you’ll see one. The other option is ten point three point two. You can terminate on or before the inspection termination deadline, which we in this case made the same day as the inspection. Objection.
But they don’t have to be. We usually make them the same. But they could be different. Honourary for the inspection termination deadline. Notify the seller in writing. Pursue it. The Section twenty five point one, which talks about what how the writing needs to be in everything that this contract is terminated due to any unsatisfactory condition in inspection. Termination deadline will be on the earlier of inspection resolution deadline or the date specified and three point one for inspection termination deadline.
So it’s the earlier of those two. So you need to submit the following a notice to terminate, which only requires your signature. You don’t need to get the signature of the seller on that. You’re basically unilaterally telling them the contract is over. If I have the right to terminate, it’s done. I’m not asking your permission. I’m telling you it’s over. And the earnest money release, which is not a unilateral agreement, it is basically an agreement between you and the seller that says, OK, you played fair.
I played fair. I agreed. The earnest money is due back to you, according to our agreement, the contract. So I’m going to release all of the earnest money you. What if the seller says, I don’t think you’re playing fair. I think you found a better property that you’d like better and you’re just terminating on smell because you want to get out of the deal. You want to get a deal free card. And they basically say, I’m not giving you your earnest money back.
What do you do that? Then you have an earnest money dispute and you go bring in an attorney to get advice on how to deal with that, because the seller is say, I’m not willing to give you your earnest money back and you think I get my earnest money back. And now there’s a conflict that you need to actually resolve. So you need to get legal advice on that. OK. So I’m to go over each of these kind of situations here in a few slides.
But the key take away his. You don’t have to object. You can decide you don’t want to buy based on the criteria we covered only and terminate. There is no I changed my mind.
I found a better deal clause. I think I’ve hit this thing like twenty five times. But you must legitimately object to something objectionable. Acting in good faith. OK. All right. Ten point three point three, or you can resolve your your objection, so ten point three point three is inspection resolution. If an inspection objection is received by the seller, she objected to something said these are not acceptable to me. Honor before the inspection. Objection deadline.
And if the buyer and seller have not agreed in writing to a settlement, therefore on or before the inspection resolution deadline, then this contract will terminate on the inspection resolution deadline. So basically, if you object and you guys cannot come to an agreement, if the inspection resolution deadline happens, the contract will automatically terminate based on the inspection objection self. That’s the default. If you don’t do anything. And then I’ll continue. It says, Unless Seller receives buyers written withdrawal of the inspection objection before such termination, for example, on or before the expiration of inspection resolution deadline.
So if you don’t want the deal to cancel, you’ve got to pull back that inspection. Objection.
Deadline and withdraw. Demi, are you smiling or smirking? There are some. So are we going to talk about some strategy about how to use these at the inn later in this presentation? Yes, of course. Of course.
I just want people to understand how they like mechanically work. Oh, you think that’s too slow? OK, that’s the fun stuff. It is the fun stuff. OK. So again, you have to withdraw this thing. Otherwise the contract terminates and you have to do it in writing if still want to buy the property as is. You’ve got to pull back your inspection. Objection. Otherwise the contracts confirm it or or the buyer seller can agree in writing to a settlement on or before the inspection resolution.
And we do that with an inspection resolution form and we will go over the inspection resolution form in a few slides. OK. So here are the dates and deadlines. We’re primarily talking about the inspection and due diligence sets of dates. And specifically we’re talking about the inspection. Objection. Deadline date now. So for this inspection objection. Deadline, we would typically, when we’re writing the contract for you, we would normally use MEAC plus 10 days. That’s what we normally put in a contract.
So after the contracts executed plus 10 more days. Then what are we doing for that deadline for you? Number one, we’re providing you a list of inspectors and more contractors if you need, like, recommendations for a roofer or something like that.
And we’re discussing what, if anything, you’d like to object to. And if you give us a list of stuff to eject you, we are preparing an inspection. Objection. Note for you. A notice for you now is really, really complicated cases. If there’s some, like, really unusual stuff in there, you may need to bring in an attorney to prepare this. But for like ninety five plus percent of these were able to do for you.
It would be a really complicated one that we would need to see if it’s a written inspection report.
We are kind of piecing the language. Inspector wrote.
Yes, from your inspection.
Notice the inspectors report. Yes. And if you’d like to terminate if you did the inspection, you’re like, there’s no way I’m buying this property. It’s barely standing. If you’d like to terminate, we can prepare a notice to terminate and an earnest money released for you for that. And if you accept the property as is, then we can prepare an inspection resolution that says we accept the property as is. We’re going to continue. So that’s what we’re doing for this particular deadline.
Now, here’s what you are doing for the inspection. Objection, deadline. Number one is you’re selecting an inspector. We’re gonna give you a list if you want one. And you’re going to select whoever you want to use or you decide you want to use your father or your brother, whatever it is you want to use there, and you’re asking them to meet you to do an inspection. And if you hire like a professional inspector, they’re gonna call up and schedule it for you.
You don’t have to worry about all that. If it’s your brother. We have to coordinate getting you into the property because you’re both unlicensed. So it’ll be a tricky part to do.
Inspectors on license to be there. The agent may need to go with them depending on what is required.
Yeah, I meant unlicensed in that you’re not a licensed agent. But yes, you’re right. The inspectors are usually not licensed in the state of Colorado. So you get to decide on whether you’re going to do additional tests, whether you’re going to radon test or a meth test or a mold test or lead based paint test or do a sewer scope or do a test for this and or termites or pass or any of these other extra tests, you get to decide whether or not you want to do those or not.
They’re completely optional. So as the inspection, honestly, you don’t have to go in, hire inspector to do it. We would normally recommend that you do. I think it’s a good, like relatively cheap insurance policy so that you have a second set of eyes on the property who is kind of very objective and not subjective to the deal and kind of just has a lot of emotion built up into it. They’re going to tell you what’s wrong with the property.
So I think that’s a prudent thing to do.
So you’ll be meeting the inspectors or contractors at the property for the inspection. We strongly advise you to go there. The inspectors is going to give you an idea of things you’re gonna need to do the property once you buy it. General maintenance, you’re gonna probably need to deal where things are, where having mechanical systems work. All that stuff. And so that’s going to happen there. And then in addition, when you’re at the property, you’re going to be checking these additional things out.
Number one, you want to make sure that you have carbon monoxide detectors installed within 15 feet of every bedroom. And if not, you’re going to let us know because we don’t want your appraiser to go out there and notice that they’re missing. And then your appraiser is gonna have to go out and charge you a second trip fee in order to verify that they do get installed by the seller after you tell them. So we want to look for him now to save you like two hundred bucks later, OK?
You’re a check the appliances and verify that’s, you know, the serial numbers on the appliances so that if they happen to get switched out after you do your inspection, but by foreclosing that you know that it’s the same. Once we recommend that when you get your insurance, you get a copy of the Clue report, which tells you a history of all the different claims you’ve had from your on that particular property. And so then you can go and look at the claims they’ve had and look a little closer to make sure that they were fixed appropriately and that there’s no, like, lingering damage or something that kind of gives you a tip off of some extra things to look at.
And that’s in addition to the seller’s property disclosure, which on the seller’s property disclosure, you can look at all the different things the seller has told you that is wrong with the property or. They’ve had some challenges with. And another tip is that one of the things going to say that actually I may or may not come back to that one, but there’s a little something extra we do that we’re not going to talk about right here.
So couple of questions. Yeah. One, do most inspectors in Colorado or really anywhere do these add on tests and really know?
I mean, it varies widely. Yeah. Maybe the rate on some may do so or scope. Some may not. Right. Yes.
Almost all of them I’ve seen do rate. There’s only one inspectors service on our list. That will also be the sewer scope. Utilities that separate sewer. So person. Yeah, those add on like more math tests that they have to send them to a lab. It’s not like their lab. Yeah. Yep. And then another question. If you’re buying a house on a mountainside or big, steep hill, how do you what extra tests do you do?
Do you do in soils test? You do in structural test. Basically prove that it’s not going to roll down or slide down the hill.
Whatever you feel you need to get comfortable with. And I would proudly bring in somebody to get an official opinion on whether or not you should do those extra tests or not. Because I am not qualified to tell you. I really don’t know. But I think it’s probably each house has its own individual cases.
My guess. Yep. And I mean, we saw that one house right where they like back part was falling off on the hill and the whole thing was cracked. And yes, there was deals like we talked to. Yeah, it was a deal. We talked to a structural engineer and, you know, he basically said this is how you fix it and then it’s good. And somebody bought it and went and did that and sold it.
All right. So continue on with this water sewer scope. More likely for older properties and especially, well, with lots of vegetation, trees. Although Tammy has been saying basically we’re recommending this on every single property now. I know it’s a relatively low cost insurance policy against a very expensive fix. If you get caught, you don’t have to fix a sewer line. And some people say you don’t need to do it on new construction. I strongly disagree.
I think that we should be doing on every new construction property now. And so we’re seeing more and more very recently, especially, that there have been some issues with sewer lines and brand new houses. And so better to have a two hundred dollar sewer line test done instead of having to break up the concrete in your driveway and maybe even go into the street and get no approval from the city and closed down the street temporarily and do all that stuff, which can become very expensive very quickly.
And so it’s it’s super cheap. Insurance is like the easy calculation, Brian. You know, you make a two hundred dollar investment and, you know, maybe one time out of 100, it’s a ten thousand dollar bill. And you know that one time out of a hundred, maybe it’s a five thousand dollar bill. And rest of the time, it’s not nothing. Still seems like a pretty good bet to me.
Yep. And I mean, the last time we talked to someone about Suer Scope’s, or at least I did on a property and there were two sewer lines from two buildings. They were like, yeah, these run into the road. You’re like 30 K each. Yeah. So, I mean and I’ve had one replaced on my own personal house on the very first house I owned. And it was like eight thousand dollars. But this was in like nineteen ninety nine.
So and they did just that. They had to dig the driveway to run it over to the yard, reconnect it.
And now someone is saying, yeah, new construction can have a lot of issues. Yeah, every house can have a lot of issues. I mean, new construction or otherwise, it’s like there’s a chance of stuff being wrong every time you buy a house. I think one of the advantages, new construction is like all the mechanical systems are at the beginning of their life. And so you have lower overall maintenance. But, yeah, I mean, you can have stuff that’s installed wrong on a 20 year old house, you know, stuff that’s installed wrong in a brand new house.
They’re built by humans. All humans make errors.
So those water heaters that we’ve seen that have been running for twenty five years, though, and that are going to run for another 20 father, way better than those new ones.
I know that that I mean, I’ve had some I don’t know if I’ve had some ones that go after 20 years. Yes. No. No. Yeah. OK. So talk us through super scope.
We talked about recommending them even on new construction order, additional inspections based on preliminary findings. So if you go in there and your inspector says, hey, you know, this is unsafe. Probably show a structural engineer or mold expert or someone else come in and do additional testing. Then we have to renegotiate your deadlines, probably bring in extra experts and have a lot of that stuff done. So you’re letting us know if you want to object and ideally as soon as possible, you’re like deadline to object is that date.
That’s not the date that you tell us you want to object. That’s like when we have to have it done. You sign it and it get into the cellar. You can’t just say, you know, at 11:00 at night on the date of your inspection, objection. Deadline, say Jameses or forty seven things. I found my inspection report. Can you please do this and get it in by midnight. I’m not a miracle worker. Possibly we’re having that conversation because sometimes you’re waiting on the rate on tests to come back or, you know, when you’re able to schedule your inspection, communication about what’s going on and what we think we’re going to do.
So this is why Tami does everything. All right. So inside inspection. Notice. Objection. Notice or the inspection resolution if you’re not objecting. That’s other things you’re doing as part of that. All right. Let’s talk about the inspection termination deadline. We often use the MVC plus 10 days for that, which is the same as the inspection. Objection. What we’re doing, we’re discussing if you’d like to terminate based on the inspection and preparing either notice to terminate and the earnest money or just one, depending on what what’s going on there and then what you’re doing, let us know if you want to terminate as soon as possible and never later than that inspection termination deadline.
And then you’re signing the notice to terminate and the earnest money receipt if earnest money release if applicable. The inspection resolution deadline, again, for this one, we usually do about three days after your inspection objection deadline. So MEAC plus 13 in this case. And then what we’re doing. We are negotiating the inspection resolution for you. So we’re going back and forth with the seller’s agent who’s gone to the seller. And we’re discussing possible options that might or might not work for you.
And then if you’re withdrawing your inspection, objection. Notice we would prepare that for you to sign to withdraw it. And there’s a spot on the bottom of that form that says you want to withdraw. So normally you would not sign that unless you were trying to withdraw it at the end and try to save the deal. And you are not withdrawing your inspection. Objection. It will terminate for you. So if you decide you’re not going to sign that, then the default is the contract would terminate.
You would still then need to do the earnest money release form in order to get your earnest money back.
Provided the seller agrees and you’re not. And it’s SPU. So what you’re doing, if you’re withdrawing your inspection, objection. Notice you’d let us know and then you’d sign the inspection. Objection. Notice to withdraw it. And if you don’t agree with the sellers proposed inspection resolution, you can let the inspection resolution deadline pass, which would then terminate the contract and then you’d sign the Arab Spring release. That’s what you would do in those cases.
So who was involved in the inspection itself? There’s a really obvious one, the buyer and seller and their agents, if they’re kind of thinking about that. But really, it’s a lot more than that. And this is kind of like the hint that no going to jail that I made in the e-mail earlier. So your inspector is probably involved. They’re going to inspect the property in their inspection report is going to be used. But this is the one that’s the gotcha.
Your lender, whether you realize it or not, is involved in your inspection. And it’s a major player. Your insurance agent may or may not be if there’s an insurability concern or possible claim and then any of the contractors, you might have to get out there and have those guys give you quotes or bids or anything like that. So all of these parties are sort of involved in their negotiation. But really, it’s it’s the buyer and seller that have the most at stake.
And the lender is going to be watching me really closely to make sure that they’re still willing to lend on your deal and that everything is still good to go from their side. OK, so here is an example of an inspection. Objection. Notice it’s on the right hand side. There you are. Look at that. And I want to point out something.
This is on almost every one of our Colorado real estate commissioner performs. It’s super important for you to realize, and that is this form has important legal consequences and big, bold text right atop here as far as important legal consequences. And the parties should consult legal and tax or other counsel before signing. Get legal advice if you have questions. And this is not an amendment to the contract. That would be the inspection resolution if it’s an amendment. OK.
So an inspection brings on, Hunter asked, your lender can object based off of inspection. Right. Not your lender can’t object for you, but they can say we’re not doing the loan. And that’s part of the trickiness. And so we’re talking about that here a little bit. I’ll get going to go into more detail with the lender. And then someone else said, you give your lender to the inspection report. And I do not unless they ask.
Yeah, I do not either.
But when you’re negotiating things on the inspection report and there’s certain things you have to disclose to your lender, that’s a material fact that we’ll talk about that a little bit, too. So the inspection objection. Notice the inspection direction. This relates to the contract dated. Whatever the date of the contract between whatever name a seller is, whatever the name of the buyer is relating to the sale and purchase the property and has the address of the property, they’re terms used here and you’ll have the same meaning as in the contract.
And this is section one of that buyers inspection. Objection. Notice one point, one buyer gives notice to seller that the property or inclusions are unsatisfactory. You’re basically telling them, hey, there’s some stuff wrong. I’m not willing to buy the property as this Section one points you. Here’s a description that was unsatisfactory. That buyer requires seller to correct. And then here is where you’d write out all the things you’re objecting to, all the things you have problems with that you want the seller to address.
If more space is required, attach additional pages. Since we’re usually doing this in our contract writing interface, we’re usually not attaching any additional pages. We’re just including all one spot. If you’re filling out the print at once, you don’t you’d have to go like say this for different pages or whatever it is.
All right. There’s a huge note in the middle of page, like if you see it here, it’s this section that’s like it’s not quite bold, but it’s got this big box around it that may be important for you to read. OK. So I’m going to read it to you because I’m not sure everyone does. OK, so here’s what it says. Notes. Resolution of inspection or other items agreed to by the parties may alter the terms of the contract and require disclosure by buyer to buyer’s lender.
Huh? Buyers encouraged to consult buyers lender prior to entering a final resolution on inspection, as well as other matters as the resolution May one have a detrimental impact on buyers ability to get the loan. They’re warning you if you’re objecting to stuff that maybe you should talk to your lender about this, because if you object to something and a lender doesn’t like that, they may not be willing to give you the loan. To cause the leak in the lender’s processing and funding of the loan by closing.
And three require further inspection and repairs dictated by the lender. We’re not going to loan you the money unless you do that roof. Communication with the lender should be in writing. That’s like a pro tip for you guys. You know, when you’re talking to your lender, make sure you get this stuff in writing. OK? And this is like this huge, important thing. Big Boxton note telling you that you should discuss this with your lender. This is a big deal.
Who is responsible, Brian? If the lender can no longer perform or can no longer perform on time, you.
Yeah, you the buyer. So if your lenders, you just may know natural. You’re the buyer. Yes. The buyer is responsible. If the if the lender cannot perform, you got to pick the lender. And if your lender doesn’t show up the closing with money, you as the buyer are in default, not the lender. Lender’s not party to the contract. OK.
Yeah, I think it was Pymble example of this is, you know, you agree with the seller in this and you don’t share it with the lender and you say, yeah, they’re going to give me twenty five thousand dollars back at closing. And the lender that breaks, that violates a rule of them giving you the loan. And they don’t know if you’ve committed loan fraud.
Yeah, exactly. All right. So here it is, Brian.
Who goes to jail for loan fraud if you don’t share this with the lender?
Not you personally, but the buyer. Yes, the buyer does. So if you say, you know, I really need a new roof, but the lender doesn’t need to know. Right. So long as I don’t give it to them, they’re never gonna find out. I’m okay with that. They’re just going to loan me the money. It’s all good. AU contraire. Well, you have to.
You have to disclose all material facts about the property to the lender that may affect whether or not they give you the loan. So you have to disclose that.
Be clear, though, we’re not talking about small heating in here. We’re talking about, you know, like the sewer line, your place. The roof is like a hole in it, you know. Yeah.
You’ve got a little rotting board on the window. Probably not. What about mold in the attic, though? Temp. Probably should be disclosed. Yeah, I think it’s definitely disclosed because we’ve had some lenders object and say, no, we’re not closing it till that’s resolved. That’s a health and safety issue.
Yeah, although like loans where they are. I don’t know about V.A., but like FHA sometimes has different requirements. That little running board by your window might actually be an issue. That’s really good point.
Peeling paint is a is a health and safety issue for FHA, the IDF. Being the appraiser is gonna check right now.
But do you know about your knowledge and you don’t tell the lender then. My fault is it.
This is like the horse. This is like the go to jail horse. I think you do these. This was attempt. Attempt. Anyway, we can talk about this offline. So continue now with this inspection notice form. Inspection report is there is not attached. You check it off. Usually we would include a copy of the inspection report that we’re giving to the seller and the seller’s agent when we’re objecting because we are referencing it in the things that are messed up.
We’re saying item number four on the defective list on page 27. This window is falling out of the whole C photo. You know, like that’s like the type of stuff we’re referencing there. So we would include that usually if we’re only asking for one or two big health and safety things that can help for us to show a big list of stuff the inspector found, but we’re not asking for. So if you’re coming in and saying, hey, I need a new roof, it’s twelve grand.
I’ll take care of the other thirty seven things on a defective item, which are all these really small, you know, fifty dollar type items. That’s a possible negotiation, especially in a really hot market where you’re competing to get deals accepted in a really strong buyer’s market, which we’re not in right now. I think all rules are off. I mean, like we can go and negotiate a lot more stuff during that time than we can during this time.
Some buyers are hesitant to give the seller a copy of the inspection report. They think to themselves, you know, I’m going to terminate. So I don’t want to go and give them be the thing that I paid three hundred dollars for. Let’s see if they’ll give me one hundred and fifty dollars or two hundred dollars for it and I’ll sell it to them. So I don’t think that’s something you should do. I think that, you know, sometimes you’re on the receiving end of that report from someone else and sometimes you’re the one paying for it.
I actually think that you are not allowed to sell that report according to the inspectors actual text in the inspection agreement with most inspectors.
So, Brian, this has come up in a lot of classes I’ve taken where they were taught by Colorado real estate attorneys. And the attorney basically says, I don’t care what the inspector wrote. If you have material knowledge, you need to disclose. And they say that you should send anyone who goes under contract a second fire, a copy of inspection report.
And I sell it, sell the report. You’re not selling the report. But you can give someone the report.
Absolutely. I’m not arguing that. I’m just saying James is saying, you know, some people want to sell the report to the seller for 150 bucks and that I am pretty sure you are not supposed to do.
I want to get, like, reimbursed or something silly, but I’ve never seen that happen yet.
And then somebody asked if the jail thing apply to hard money lenders. I think you should disclose your letter. All material facts that you know. Whether it’s a hard money lender commensal. Yeah, because if they find out later and they’re not happy about it, it’s probably the last time they’re lending new money. And who knows what it’s going to do to your reputation? Yeah. All right, let’s see here. Sellers should. So if you go and you give your inspection report, the one that you inspector did ask the buyer to the seller’s agent, the seller, they should in theory, at least disclose all material facts.
They now are aware of. Because you’ve given them notice with this report of everything that’s wrong with the property. So they should, in theory, pass it onto any new potential buyers and disclose all that information to them. Does that always happen? In my opinion, probably not. Should it always happen? Yes, it should happen. I think if you’re on the sell side and you have that knowledge, I think you have a requirement and obligation to disclose all material facts that you have about that property.
And we’ve we’ve seen this actually happen. I mean, this is the seller’s agent should be disclosing any material facts, whether it’s from an inspection report or not.
But like we’ve seen this happen where we’re interested in their property. And a neighbor emailed a letter to the seller’s agent saying, we think this might have been a meth house. And then they sent us a letter saying, hey, it’s material knowledge. We have to disclose this to you. We got this letter from a neighbor and they thought it might be a meth house. So please do with this as you will. May or may not be true.
Right. So it’s pretty crazy.
This reminds me of all the other offers. Yeah.
Neighbor did. Neighbors began to not make a bid to buy a house or a discount. This time, this reminds me in some ways of, you know, there’s two houses on either side of a property that have sewer problems at the same distance and the property between them. You would think that they might have sewer problems. You would think that the seller would disclose to you that we had these two issues on the side of the property. We think that there’s ones on the middle one.
So anyway, just a side note, little mini conversation going on in front of everybody. Also could keep you out of the inspection. Objection. Notice I’m quoting from that formiga. If the buyer and seller have not agreed in writing to a settlement of the above matters on before the inspection resolution deadline, the contract will terminate. This is the form you’re sending over to them. It says if we don’t come to an agreement, we’re done. It’s terminating unless the seller receives written notice from buyer withdrawing this inspection.
Objection. Notice on or before expiration of the inspection resolution deadline. So contracts going to terminate unless the seller receives notice on it before that deadline. If there is a spot at the very, very bottom of this form that the buyer can sign for the inspection, objection notice. And there’s one even below it that says they’re withdrawing. So here’s the section on the withdrawing section to buyers. Withdrawal of inspection. Objection. Notice the buyer withdraws the inspection objection notice and elects to proceed with the contract.
So this is the spot you’d sign if you were withdrawing it. So you only sign this part if you want to continue with the contract. Not when you are objecting for the first time. So this is a form you’d send over to them twice, first time without the signature of the very, very bottom and the second time with the signature saying you’re withdrawing it. I signed it to. OK. So this is a it’s a weird slide because this goes over and talks about inspection options and it sort of deals with like you’re negotiating philosophy or you’re negotiating stance and and how different investors kind of invest.
I mean, there’s like the you know, the gruff, money hungry investor that wants to go in. And they only feel as though they’ve got a good deal. If they beat them up and take every possible penny they could take off the table. They need to get the deal at a huge discount upfront and then they need to beat them up some more on the inspection. Then they need the appraisal to come in low and and get a discount on the appraisal.
And, you know, there’s a they didn’t realize the mineral rights were not included on the title report. So they’re going to get a discount for that. You know, they like want to beat everyone up over every little thing in there. And that’s like the win at all costs, like make sure they pay every cent that you can on the deal. So when you think about this, how you negotiate these inspections, I think it’s at various quite a bit.
So no one is you could you could terminate on the contract, which is pretty clear. But then there’s the object or insist stance on inspections. You can insist that they make repairs or you’re going to terminate. You go in there and say, unless you fix this window, I’m terminating the contract, unless you give me a discount. This is the insistent discount which terminate. Unless you give me a discount, I’m going to terminate. Unless you do these repairs and give me a discount for all these different things I have to do.
I’m going to terminate. That’s like the objective insistence for negotiations. There’s another version of this, too. And that’s the sort of accept as is. But ask. An example of this might be, you know, you bid fifty thousand dollars above asking price on a plex. And during your inspection, your inspector, your inspector mentioned to you that, you know, there’s two sinks and two kitchens that have leaking sinks and they’re just you know, they continue the drip and they’re damaging the property more.
And the sooner you can get that stopped, the better you are. And that’s really the only thing of consequence that’s on the inspection self. And so this is the investor comes in and the buyer and they say, listen, I’m not going objecting anything, but what would you please do me a favor? I bid fifty thousand dollars above asking price. I still want to buy the property, but it’s going to be more damage to the property. If you don’t fix these two things, would you please send your handyman in and fix the two leaks under the sink?
So you’re going in there and you’re accepting it as is, but you’re sort of asking for something. So, you know, could you please go and do that? You know, go fix the sinks there or. Hey, listen, I. I’m going to accept the property as is. I just didn’t realize that, you know, that there’s this much damage in the roof. You know, if you’re willing to contribute some money toward us getting that fixed, you know, I’d be willing to do that.
And sometimes sellers would be like, right. I didn’t know that that was the issue either. Yeah, I totally will, you know, do five k last or whatever it is on the offer or you do a combination of both type stuff. And so we see this sometimes with sellers where, you know, you come in and you’ve been more than fair and they’re willing to negotiate and be fair. Back to you. So that’s just sort of like some different inspection options as to philosophy going in.
So question, what if you waive inspection? Objection, but retain the right to terminate. You find one large issue like a foundation can or should you negotiate if you’re OK buying as is, I think you always are allowed to see what the seller is willing to do if you find it. Yeah, we can terminate.
We have a slide on this at the very end because that exact issue. It’s like, you know, you basically come in and in order to get your offer accepted, you said to them, listen, I’m I’m not going to go ahead and and submit a list of things that we’re gonna object to. I’m only going to do an inspection. And if the deal is just so bad that I can’t continue, I’m going to terminate and that you all sell that it’s a benefit.
Right. But for the seller, if something comes up that they didn’t weren’t aware of and that they didn’t know about. I think most sellers would want to know, hey, we didn’t realize you guys had foundation issues instead of me automatically terminating. Why don’t we discuss, you know, now a complete negotiation as to what we can do in order to continue moving forward on the deal. So you don’t have to have the inspection objection in there. But that’s what that inspection objection is all about.
It’s you can say to them and your additional provisions that, you know, we’re not going to object to any list of cosmetic repairs or anything like that. So you could do that and have the same sort of effect. But you’re not giving up that right to object and negotiate a resolution. If you do it that way and we’ll get to that slide. Maybe I just covered it there and we’ll just kind of pass over that slide at the end.
OK, subject in tips. So check with your lender to make sure they’re OK with whatever you’re thinking about doing on a resolution before suggesting the seller fixed stuff or reduced price. So if you think that you’re gonna need to do a repair or are you going to do something you absolutely need to have in writing a conversation with the lender saying, hey, you know, if can I fix the mold in the attic after closing? And lenders may say no.
Or can the seller fix it? No. You need to have a license for us to do it. Or can the seller just go and do the roof? You know, he’s pretty handy. No, you need to have a license roofer do it or whatever it is. Right. You need to find out. It may require another trip by the appraiser to verify that the work was done by disclosing this and it may cause additional underlying delays. And so you may want to have this discussion as part of your inspection resolution that you’re changing some of these dates as well as part of this negotiation process because you don’t want to have run up against a different deadline as these things get tenser toward the toward the end of it.
Having negotiated this early on. OK. Now, this is like the go to jail section. Not disclosing to lender may be considered loan fraud. All major defects must be disclosed to the lender regardless of the forms used. So it doesn’t matter if you say I’m going to do this on them and extend, I’m gonna do it on inspection. Resolution, you know, needs a new roof. We’re just going to discount the property by 10K and I’m going to buy it.
I’ll take care of the roof the next year or so. You can’t do that. You need to disclose major stuff to the lender. They need to be aware of it. It’s a material fact on the property. You can’t legally hide that the home needs a new roof for sewer line or anything like that under any circumstances. There’s no acceptable solution for that. There’s no acceptable case for that. You have to disclose it. OK. So be aware.
And then on your. Objection. Be specific. Clearly defined what you’re objecting to. References, inspection report. Reference to page number of the item number when possible. Ideally include photos of the item. And usually that’s from the inspection report itself, although you could do it separately. And that’s where we see that. So what’s common? It’s pretty common to objective things that are required to be fixed to get the loan, for example, if he needs a roof or furnace or nonfunctioning kitchen or bathroom, some loans, other require like health and safety, things like FHA and V.A. loans and things of that nature.
So realize that some of those may just need to be repaired. Like, I know we’ve had a property where the concrete was slightly unlevel and it was a tripping hazard. So they require that that be fixed for I think it was FHA loan that we were doing that for another V.A. loan that I’m aware of. They didn’t have Bannisters, unlike a there’s a split level house with like three steps down to the basement and they didn’t have a banister on that particular staircase.
That was a health and safety issue. They had to install the cellar, had to install banisters on that for the loan to go through. And so there’s stuff like that that comes up and the appraiser had to go back out and verify that this were done.
So here’s just a really generic sample of what inspection noticed, what it looked like. One roof at the end of life required replacement, two fences broken as described in item three on page 10 of inspection report. Radon is about four picocuries per liter. C, a test radon test report results. Now, let’s talk about the inspection resolution. So that was all stuff about the inspection objection itself. Now what resolution? Again, big warning at the very top of the page.
This form is important legal consequences, and the parties should consult legal and tax or other counsel before signing. And know for those of you that are like, you know, I want to say money, you know, I’ll just have my real estate broker do that. I’d never got trained on the law stuff. Tammy, do you ever go to law school? Yeah. So we’re not qualified to do that. And thinking that you’re just going to rely on art advice.
I think that’s a bad idea. So in most cases, you’re not going to run into anything that’s weird. But if you have questions about stuff, you probably should go hire an attorney. All right, so get your legal advice, get your questions answered. Here’s an inspection resolution. So I’m reading from the form itself inspection resolution amendment to contract to buy and sell real estate. So this amends the contract. The inspection objection does not. It’s basically saying this is what I object to.
The resolution itself is an amendment to the agreement you have with the seller. Now, here’s a really important note. If the lender is asking you to move a concession, a reduction in price or something like that from an inspection resolution to an amend extend, then watch out as this may be the loan fraud and likely dual contracting. And there’s the Colorado revised statute for the forward dual contract, the IS. And I’m going to read you that law here in a second.
There’s another big warning.
So if you’re lender, you know, your loan officer says to you, hey, I see you put on this inspection resolution that you’re gonna get a five thousand dollar credit instead of having the Rufi place. Would you please actually get an amend instead of having that on the inspection resolution? Would you and the seller please put that on an amend and change it? Just say, you know, we’re going to add a five thousand dollar seller concession on this.
That’s bad. That’s not good, guys. OK. So in general. Repairs belong. An inspection resolution. The concessions belong on the mend extent. You should do it right the first time. If you bessus up, you need to make sure that it’s corrected correctly. So if a lender asked you to move concessions from the inspection resolution to an amend extend, you must have language in the new amend extend that says it replaces the language in the inspection resolution.
And make sure you talk to your real estate agent or manager broker or if this already happened, you’re trying to fix it. Probably may want to bring in an attorney because it’s kind of funky. OK. So here it is. This is the statute that you’d be violating the dual contracting. This is Title 18 Criminal Code, Article five offenses involving fraud. Part two, fraud and obtaining property or services. Colorado revised statutes 18 Dec TEC five that Dacca to 08 2016.
And I’ll read it to you. Dual contracts to include loan fraud. It is a class three misdemeanor for any person to knowingly make issue, deliver or receive dual contracts for the purchase or sale of real property.
The term dual contracts, either written or oral means two separate contracts concerning the same parcel of real property, one of which states the true and actual transaction details, and one is used or intended to be used to include persons to make a loan or to induce persons to make a loan or a loan commitment on such real property and reliance upon the same information. So when the lender, the loan officer says to you, can you please move this from inspection resolution to an amend extend?
Now you have an inspection resolution, which is the real deal, and the amend extend, which is the kind of like corrected. Please do this. You’ve got two forms that are basically on the same property that is dual contracting, that is not allowed. Bad, bad, bad, bad. OK. All right, so inspection resolution. Who and what? This is special resolution against the contract dated like date between the seller and the buyer relating to the sound purchase of the property terms used here and shall have the same meaning as the contract.
So identify who it is and what you’re doing with it. Section two, resolution of unsatisfactory physical condition pursuant to the inspection resolution provision in the contract buyer and seller agree that seller honor before whatever date you put in there, we’ll do the following to resolve buyer’s inspection. Objection. Notice. And it gives a deadline for completing the work. It does not give us a deadline for inspecting or objecting again to the work. So if it’s something significant that you want to have inspected the second time after they do it, you’ll need to do that yourselves in writing, in the agreement, because there’s no automatic blanks for that.
OK. So if that’s important to you, make sure you do it and you list out the stuff both the buyer and seller are agreeing to. So here it is. If you did if you if you went through the inspection, you said, OK, I’m OK buying the property as this. You would do something like this. Buyer has inspected property and agrees to purchase property as is. That would be an example of you saying, I’m good.
I’m moving forward with the deal. I don’t need you to fix anything. So this example where you’re willing to do that. All right. Inspection resolution. This is more from therefore, sellers cost pursuant to the damaged Lean’s and indemnity provision in the contract. Correcting or resolving the unsatisfactory physical condition set forth in this document will be paid by seller. So the seller is going to pay for all the repairs. The damages indemnity provision talks about how the buyers responsible for all the costs and damage done during the inspection.
So if you normally damage something when you’re out there, inspect the hit, you as the buyer are responsible. This is basically saying that for the inspection resolution, though, the seller is not responsible, seller pays for correcting unsatisfactory conditions.
Now, what happens if Brian goes and buys a property and the roof needs to be repaired and the seller doesn’t have the money to repair the roof? What do we do? Well, one of the things we could do is we could say, hey, let’s go have a roofer contract to do the work and bill us so that they have to be paid off at closing. So if if the roofer is willing to wait 30 days to get paid and they know it’s going to come out of the proceeds of the sale, they may or may not be willing to do that.
That’s one option. Sometimes the lender will agree to escrow money, so they’ll say, OK, we’ll close on it and we’ll have the roofer do it, you know, come spring when there’s not snow on the roof. And I’m going to set aside fifteen thousand dollars from the the proceeds from the seller to pay the roofer to do the work. And then as soon as that’s done, we’ll release the rest of its office to the seller. So something like that might happen as well.
Survival, if any, agreed upon correction requires action after closing the obligations agreed upon shall survive closing. So if the seller says they’re gonna do something and it’s not done by closing the contract, it’s still in effect even after the closing. It may be hard to enforce this, though, like if the if the seller is supposed to do something and the seller disappears, you may actually have to go after them in court and try to get this done.
So it’s less than ideal in some ways. And then a big note, this document amends the contract. And in case you didn’t know, it says it right here, Buyer must provide a copy of this inspection resolution to buyers lender. So if you think I’m just not going to give it to him, that would be bad. OK. You must send this. The buyer’s lender, it says so right in the form itself. Failure to do so.
Maybe loan fraud. So it has spots for the buyer and seller to sign and the date they’re agreeing to the amendment.
The inspection resolution. OK. So check with your lender to make sure they’re OK with it before accepting it, because it’s hard to renegotiate these things when you tell them, oh, I didn’t realize the lender wasn’t gonna go for that. Now I’ve got to renegotiate again. OK. That’s not fun for anybody. Many lenders would just prefer to see a price change with no mention of repairs. But again, check with your lender, get it in writing sample sellers are providing a concession of X dollars or purchase price has been reduced by X dollars.
Those are examples. So me, I had a really interesting discussion on this particular slide kind of preparing for tonight. And it’s it’s sort of like context specific best practices.
So it just kind of considered these in certain situations for most inspection resolutions. We’re not going to use a lot of these, but there are cases where they’re really, really helpful and really appropriate to use. And so it’s sort of on a case by case basis for very specific situations. But I’ll read them to you and hopefully you can discuss this with your real estate broker. You know, ideally with Tammy, when you’re ready to buy your house and she can help you.
So here are a couple different best practices. Number one, include the ability for you to reinspect the objectionable items and approve the work that was done. If they’re going to do something really simple like, you know, replace the light bulb that’s really high in the kitchen because it’s out and I want to make sure it’s just a light bulb and not the electrical socket there. You know, do you need them to like. Do you need to go out there, reinspect that?
No, just haven’t changed light. We’ll take a photo and send it to you. And you’re done. Right. You don’t need to do something like that, but something major where you want to actually have it inspected. I can see getting a date to be able to review that again. Require work to be done by licensed insured contractor light bulb example again.
You’re not having an electrician go out there, change light bulbs, although we spent a ridiculous amount of money having a light fixture in our house replaced. How much was that like six hundred bucks or something ridiculous like that? It was like 600 bucks. Remember lot. Yeah, it was like crazy.
Have them literally go and change a light fixture in the end, like a vaulted area of our house anyway.
So require work to be done with license. Sure. Contractor require copies of receipts. Maybe. Or maybe not. You care about that. Require a transferable warranty of work that was done in case by case. Get owners owners extended coverage insurance from the title company covering mechanics leads. So if they’re doing some work on your property and they’re going to be hiring contractors and they may or may not pay them, you should get always see to make sure that it covers you for mechanics, leans on the property from the seller and you should have already asked for that because that is a checkbox in contract and sell under owners title insurance.
And also said it is extended coverage will be included in place. And you can always check. Yes, that will be included.
So yeah, that’s something we normally include. But in case you dropped the ball and didn’t get it early on. Sure. Like why do I pay the seventy five dollars more. Seems like an extra kind of superfluous flip pfieffer for title stuff. It does help you. It does cover you in case like the there’s a mechanically left on the property you’re filed after the fact or something.
Also some dispute. I mean there are other advantages that you can’t lose. One of them. Yeah.
There’s like five things that coverage or something like that. And it’s right in the contract in case you’re wondering what they are. It lists what always C covers right in the car and a real estate proof commission follow commission, real estate commission approved rules contract to buy. So do we need more time for appraisal to allow appraisals to go back out and check work? If so, negotiate that and do any more time for loan objection because of additional underwriting requirements and delays.
If you’re going to do a bunch of extra stuff and there’s going to be lenders going back and forth and doing stuff, maybe you need more time. Time to negotiate. That is during the resolution, not later.
So I’ll just throw in here that there were multiple offers and you’re in a hot market. You’re probably not negotiating all this extra time, especially that someone else in the wings. You maybe came later with cast-off or something like that. So just keep, you know, the situation and minding your expectations.
Good point. All right. So when you’re negotiating this, let’s say you come to an agreement in principle that, hey, listen, there’s gonna be money that’s coming to me because there’s stuff that needs to be done to this property. Do you take the money as a price reduction or do you take the money as a seller concession? And so I think there’s a couple of considerations. Number one is, do you want to bring less money to closing?
That would be seller concessions. Or do you want to have slightly lower monthly payment and maybe the slightest amount less to closing because if you’re bringing 20 percent down, you’re gonna do that. So. So here’s the way to think about this, in my opinion. Number one is there’s a rule of thumb that says for every ten thousand dollars that you finance, it’s about 50 dollars a month in payment. And with interest rates as low as they are, it’s actually a little bit lower than that.
But there’s a really good general rule of thumb for all times. OK. So at two point five K reduction at twenty five hundred dollar reduction in price is about 12 dollars per month in reduced payment. So if you’re going to get twenty five hundred dollars off, do you want to save twelve dollars a month? Or do you rather bring twenty five hundred dollars less to closing with a Brian. I think it depends on how much you already are getting in seller confessions and making sure you’re not going over the limit that the lender allows.
And then probably after that, I would take it as a seller concession vs. a reduction in price. Yeah, I agree with that.
We’ve got to sign that section down here about the loan limit question, too. So here’s what you can use if you took it. Seller concessions. This is what you could do with it. This is Section four point two from the contract. It says the seller concession may be used for any buyer fee, cost charge or expenditure to the extent the amount is allowed by the buyer’s lender. So first, get make sure lenders are OK and is included in the closing statement or the closing disclosure at closing.
You can’t do something that sort of is like a kickback outside of closing. That’s not a lap. Examples of allowable items to be paid for by the seller concession include, but are not limited to buyers closing costs low and discount costs. So you can actually use it to buy down your interest rate loan origination fees. If you had to pay a fee in order to get the loan, any pre-paid items like prepaying insurance or taxes or stuff like that or any other fee costs, charge, expense or expenditure seller concessions is in addition to any some seller has agreed to pay or credit the buyer elsewhere in this contract.
OK. That’s from that section. Now, if the loan programs limit how much you can use. So if you if your lender says, hey, listen, you can only use five thousand dollars and sell concessions, then asking for five more doesn’t help you, because if you don’t use it, it goes back to the seller. It’s not like you’d get it somewhere else. That’s how it’s defaulted in the contract. So find out from your lender what you’re Max’s friend if you’re close and your limit and make sure you have this discussion.
You may decide you want to split some between seller concessions and some price. So let’s say you negotiate ten thousand dollars for a roof. Maybe you say I want five K in price reduction. I want five game additional seller concessions. That seems reasonable to negotiate to make. I also considered the appraisal when deciding seller concessions and price reduction. Some people would argue, if you are going to be close on your praise price, maybe you want to actually take it as a small price reduction so that you’re not going to run into problems, have to renegotiate again when you come to your appraisal later, especially if you had to overbid in order to get the property to begin with.
OK. And I think Tammy has a slightly different take on this, where she feels as though she has a pretty good negotiating stance if the appraisal comes in low. And you’ve already negotiated something on inspection that you probably can still negotiate an additional price reduction from the appraisal discount as well that your stance?
Well, kind of. I think it really just depends on the situation because some sellers are willing to work with you and some aren’t. And everyone’s a little bit different. But I do think that that is a reasonable position to take.
Yeah. But if you bid over I agree with what you said, you bid list price. And another reason they were saying they thought it would appraised for less price. Yeah, I think that’s valid.
All right. So I’m just going to go through and read you a couple samples of ones that people have used on inspection resolution just so you get a feel of like what the range of normal is. So here’s one example. Seller agrees to have radon mitigated by licensed contractor that guarantees radon levels to be below 4.0 peak curious per liter of air. Another example might be Sellar to have active Radom mitigation saw by a licensed contractor that guarantees radon levels to be below 4.0 picocuries Praed liter of air mitigation work to be completed by and they named a specific company in this example.
Total cost is 450 dollars, which shall be divided evenly between buyer and seller buyer share of the costs. Two hundred twenty five dollars shall be paid outside of closing on the day and at the time of closing to the seller as a personal check seller shall be Strongsville for payment of the entire bill to be with the company immediately upon completion of the work. And in this case, we’ve disclosed to the lender that there’s going to be a little payment going on outside closing.
So they’ve been given notice and this would be OK, although most of the time having stuff that’s paid outside of closing can be questionable. Right. We don’t usually do that like side deals. Yeah.
You know what else is weird about this one is that if you’re the seller and it’s not really a big amount of money, but if the buyer doesn’t actually close on this transaction because they can’t get an appraisal or they later miss a deadline or whatever, and they basically cancel their contract, the seller is on the hook for the for the full 450 and they’re not getting to twenty five from the buyer.
In this case, I think that they’re going to do radon for no matter who the virus share. Now they have knowledge that it came in over four if they have to go raise the price in the MLS by 500 bucks. They could do that if it fell out, right?
Yeah, and they say if it was a higher dollar and great wasn’t just radon. There’s a risk here to the seller.
Totally great. And we’ve had that before. We’re a seller has agreed a fixed like a twelve point item and then the buyer couldn’t get their loan at the end. And that was really weird.
Yeah, I think that’s why a lot of sellers would rather just give you a discount or a concession if it seems reasonable to them, because then they’re not putting out that money for repairs. They may not you know, the next buyer may not want the Ophuls agreed. All right. Give you a couple more examples of this. Here’s another example, SELLAR We’ll have the electrical system in the house updated by a licensed contractor replacing the knob and tube with copper wiring.
So that is up to code seller will provide receipts showing work was completed one business day prior to closing seller to provide any warranty information provided by contractor. Closing seller will obtain permits for the work done in the bathroom in the front of the house. And if radon test results come in above for people curious for leader seller, we’ll have licensed contractor install radon mitigation to reduce radon two below for people curious. Leader Reseat will be receipt’s to provide at least one day prior to closing and warranty information will be provided that closing.
So there’s another example.
I do think there’s one thing missing from the last paragraph of that. There is I told game earlier. Yeah.
You actually need to have a retest and get the report.
Oh, I. That you to be at or above or keep your Reith at or above the limit. Yeah.
But I think if you don’t get it retested like you tell them, hey, it was 4.5. Hey, I had a contractor go install it, but they don’t retest and they don’t verify it. You’re kinda out of luck. Yeah. Yeah.
So here’s another thing. A seller. Oh, this is I compare these two. So this first one was submitted and I think we actually countered with this one. So Seller agrees to part one and part two. Option A. of the inspection objection. Dated January 14th, 2015 at closing, the seller will have land title cut a check out to the seller proceeds to a company that did contract work for their services. Buyer will be responsible for scheduling this contractor and obtaining approval from the HRA for the exterior portion of the work.
And then I think it was counted and said Seller agrees to part one and part two. Optionality inspection dated the state which states part one. And then it went through and says sellers remove the refrigerator and couch from the garage. Part two option. A buyer and sellers agree one seller to fix the Tokay heater at the kitchen sink base. Two sellers have active rate mitigation stalled on non and then at closing the seller well, blank. I hope to get the check and everything.
So a couple more samples and I think I’m pretty close to being done after this. So I sell ourselves expensive. Higher rate on mitigation company to install a rate on mitigation system. System will be guaranteed to reduce radon levels to below four and retests with written results to be provided the buyer’s agents. Here’s an example that for you, Brian, and the estimate, invoice and description of installing Morente was sent the buyer’s agent on the state and then seller to add installation to area missing insulation above both kitchens.
So to have furnace and AC service on both units. Another one seller to install working SEO detectors within 15 feet of each bedroom, seller to have septic system pumped and provide receipt seller to install a new light bulb and master bedroom and provide evidence that the light fixture is working. And then seller will have the glass in the front cracked window in the bedroom above the garage, replaced by insert company in city. All right. So terminating, I guess, is like one more thing here.
You’ll want to terminate and probably ask for your earnest money back if your contract is written such. You should get it. You must do this provided prior to your inspection termination deadline, not the inspection resolution deadline. To be clear, has to be the inspection termination deadline. This is an example of what a termination form looks like. And I will point out to you, it’s got that same thing about legal consequences. You should definitely do that. And in this one, your notice, we’re not saying specifically that you’re terminating based on smell or, you know, these high speed Internet.
All you have to check off is inspection section ten point three, and you ought to provide additional details. This is what Tammy was saying before about attorneys recommending that you you basically let the paperwork do the talki and tell them that it’s inspection in general. You’re not going into any details. You’re not getting on the phone and saying, you know, they just really didn’t like the carpet or they found a better property or is the smell in, you know, Fort Collins or whatever it was that you didn’t like about the property?
And to be clear, most agents will ask, you don’t want to know. Yeah. Because they’re their sellers asking. Well, I thought they loved the property. Why are they canceling? Why are they terminating?
And then here’s what an earnest money released form looks like. It’s the agreement between the buyer and the seller that says, yes, we agree. Everybody played fair and that the earnest money should go back to this person or this amount should go to this person and this amount should go to this person. And they both have to sign it and agree. If they don’t, then do you have an earnest money dispute and you’ll have to go and hire an attorney.
Get advice on how to go in and contests that and fight that.
And so we already covered this one, this was that case where you say, I’m going to inspect, but I’m not going to object, I’m either going to terminate and move forward with the deal. And I think we’ve already discussed it. So I’m going to I’m kind of kind of like, let that one lie. And then finally, this is actually the last slide negotiating tips. In some cases, you may want to include a inspection resolution form filled out with what you want to have happen when you object with your inspection objection form to make it super easy for them to just sign it and move forward.
Although Tammy has a really interesting counter argument that you don’t want to be negotiating against yourself, so you don’t want to go and say, this is what I want you to do and please sign it when they may be willing to do more, which I don’t if you’re getting what you want.
How bad is that? That’s kind of my counter argument. So what Tammy can. So make it easy on the worker to say, yes, some sellers might find it presumptuous if you go in and say, you know, here is the objection and here’s what I want you to do. They may be turned off by that. And so you’ve got to be careful about that one, too. And some other negotiating tips. Is this something the seller can make an insurance claim for, for example?
Is it a roof that had hail damage? And if so, you don’t have to negotiate to get the seller to pay for the whole roof. You just have to get them to be willing to make an insurance claim. And maybe you’re willing to pay part or all of the deductible because you were expected to get a 10 year old roof. And now you’re getting a brand new one. And I’d rather have a brand new roof and pay a thousand dollars or four or twenty five hundred dollars than they have to pay for a brand new roof.
Myself, in five, 10 years, whatever it is. OK. You can also give them option A or B that says. I’d like you to either do these 17 things, option A or option B, reduce the price by fifteen thousand dollars. And so you can go in there and say which one works better for you? Would you rather do all this work or would you rather give me a price? And in some cases, you want to like weigh those such that it’s the one that you want is more advantageous.
So let’s say you really want them to give you the discount. You can provide a lot more stuff for them to do with the dollar amount that you really want. Or you can say, I really want them to do the work. So I want this dollar amount that I want to be really high dollar amount because I really just want them to fix those three things. I don’t want to have to deal with it so you can wait those over.
You need to for doing that. I think we talked about that. So any final questions, that slide is a whole class. Do you think so? Yeah. Like, we didn’t talk about negotiating at all. Really? No.
You talked about the whole process and then you have one side of negotiating. There’s an entire two hour class on how to negotiate.
And then I thought it was all negotiate.
What was the title of this class? It was the process for inspections. No, it was not making them winwin. It was, say, out of jail. Stick at it. I don’t I don’t think you fulfilled your obligation of oh, my God, creating win win inspections.
I got called out, like, instantly after class. That’s not usual.
I think I was looking forward to all the discussion on inspection like negotiation. This was just the whole bunch of off.
I think what marks this market is you have to have some adjusted expectations if your, you know, life situation, even if there weren’t multiple offers. But the market’s still pretty hot. I think sellers are just not willing to do as much.
So I don’t know how hard or aggressively you’re negotiating on every deal. Yeah, no doubt. Yeah. If you’re like one of seven offers and you had to bid eleven K above in order to get the offer accepted. Guess what? Probably not negotiating that hard if there’s other Hoffer’s behind you and stuff. Right.
Yeah. I think I think that that particularly right at that point is it depends also on what the what the sellers like. Plans are and whether they’re buying another house and whether they’re under a timeline. And how far down the road your inspection objection and resolution deadlines are.
Trochaic embargo. How much he wants to house you. How much you want to fight over some small stuff? Do you really want to fight over small stuff? And are you willing to play the game of chicken with the seller where you’re like, here’s my objection. You know, I don’t accept your resolution and midnight coming on our resolution deadline.
Yeah. And we had this come up very recently where we thought we were in a pretty good leverage position with clients, where the seller was closing on a new construction property. And we knew them trying to close on the same day as this one and use the money in order to buy the next property. And so we came in and tried to negotiate a little harder than normal in our current market in order to get a negotiation. And they just like said, no, we’re really not interested in that.
And it took me back a little bit by surprise. I’m like, you know, I thought we were in a pretty strong negotiating position with them and their deadlines and stuff, but they did not seem to be interested.
You know, it’s funny, I’ve talked to a seller on the opposite side of that where they were kind of willing to walk away from some earnest money on a construction deal if the buyer didn’t become what felt reasonable to them. And so I think people don’t always act like you think they’re going to even, you know, the boundaries of their situation.
There’s an emotional component where people are like, this is my threshold, you know, and maybe maybe you let it go to termination, try to resurrect the contract and be like, yeah, we’re serious. Give us this money. But, you know, you’ve got to have the appetite for that, too, on the buyer side. Yeah.
And sometimes you’ve got so much momentum built up that you’re just like, it’s close enough. I’m moving forward like I want this as a rental. I know I’ve lost my rate. Rates are a little volatile right now. I don’t know what my rate is going to be if I do this later. And I’ve got a sort of interest from tenants lined up. And, you know, I got other stuff going on in my life and I don’t want to mess around with this as well to do it, so.
All right, cool. The other community, I was muted, it was like the Tami’s like Brian Stockinged, but we came here like on the flip side of that, though, if you are looking at your property and it’s just has an overwhelming amount of stuff that needs to be repaired and it’s, you know, then either don’t buy it or negotiate hard and get the discount and be willing to walk. Yeah. And I think that’s the key.
Right. Like the one story that really resonates with me that I always go back and think about is a duplex I bought. Right. And it was like I, I pulled it up and like my inspection objection was there are 15 items out of 41, one from the defective summary, from the inspection report that the seller must correct. And then they were all listed out. Right. And it said, you know, I’ll take care of the other twenty six.
And these are defective, not minor. Right. These are defective. And some of them are huge. But it was like the roof and the gutters are bad, right. There is water damaged and rotting siding and things that you couldn’t see during walk through and exactly, you know, basically listed it. The seller was like, no. And I was like, well, it needs to be a discount. And I think I don’t even remember what discount like I first asked for.
And then the seller was like, no. And I we drew up the story to terminate and send it over. And the seller was like, oh, you’re serious? And they were like, what’s the number? And I think it was I think my first number was like thirty three thousand. And they were like, no. And then the number that actually passed was nineteen thousand. And they were like, we’re so far down this path. And we just want to be done.
And they said yes. So rare in today’s market. But. Don’t buy something you can’t afford or don’t want to have to fix up. I totally agree with that. Like, if you are going to you’re taking on more than you can handle financially. You should terminate. You know, if you during inspection, you find out it’s going to be twenty five thousand repairs and you’re a nomad. You’ve only got five percent down maybe in a couple of months reserves.
You don’t buy that property yet. Yeah. So there’s a question out there. What about items sold on a bill of sale? Like when the buyer by the pool table or hot tub or whatever that exists in the home but are not included in the contract but are on a bill of sale for reasonable price. What’s the context of the question, I’m not sure. I got seven slides ago. One, two, three, four, five, six, seven, eight and 17.
I really don’t know. Like what? Like what the question is, who’s around?
We’re talking about examples maybe with all the great examples, resolutions.
But like, what do you what do you negotiate? Like, it’s not in good condition. I don’t know. I didn’t understand the question. Yeah. It’s not a good condition to negotiate that. If it’s if it’s one of the inclusions, it’s whether it gets disclosed to the lender or not. All right.
Oh yeah. Well, yeah. Yeah. So. So here’s the here’s the thing that I think about.
Like, if you’re including personal property in the sound, you’re trying to finance it in with the mortgage. I think the lender needs to know.
So they come up with something. I forget what it’s called, but there’s a separate, like a personal property thing to the contract lender may require that you use that so that it’s not aren’t the loan you’re paying for it separately.
But if it’s really. So this is the interesting argument that I hear all the time. If it has no value, then it doesn’t have any value and it doesn’t matter.
And it’s not to be an issue for the loan. But if the seller wouldn’t give you that for free, then it has value to them and it is adding value to the purchase price because the buyer and seller agree that it has value. And so it needs to be disclosed to the lender. And so it’s this really weird mind thing where if it’s not a value, that it doesn’t matter and the seller should be willing to give it to free. If you do have value, then it should be a factor in the price in the lender needs to know.
So it’s kind of a good thing.
I think there’s a mini class topic on how to deal with that. I have seen some new stuff come out recently in the past year about what you’re supposed to do if you have like personal property that the lender takes issue with. Yeah, your your possible solutions.
Yeah, there is probably many classes. I know there’s an email that went through all this detail that we have. Yes. Yes. Yes. That’s what I’m referring to. Yes. No other questions yet. Awesome. Well, I appreciate everybody. Thank you all for coming. We will end the recording. And Brian will stick around for a few minutes for the class after the class. And we should all appreciate Tammy coming on and sharing her knowledge.
Usually she’s a she’s in her paperwork coma, dealing with all the contracts and stuff like that.
And so we had to pull her out to do this. So thank you very much for coming on. And thank you, Brian, for coming on. I really appreciate that. So you all are very welcome. I’m going to end the recording. We’ll stick around. Feel free to stick around if you want to, but thanks, everybody. I will talk to you all soon.
Property Inspection Classes
To see other classes about Property Inspections, check out these:
- Insider Secrets of Experienced Home Inspector for Investors
- Negotiating Win-Win Inspections for Maximum Benefit - Nomad™ 2017 Edition
- Negotiating Win-Win Inspections for Maximum Benefit - Nomad™ Investor Club Edition
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