Saad and attorney Ali Alavi discuss all that goes into contingencies for both buyers and sellers.
Saad: Hi, everyone. Welcome to Storii Time where we talk about all things real estate. I’m your host, Saad Munir and today, I have my good friend and close partner, Ali Alavi of Alaivi Braza joining me.
He’s a real estate attorney based in the Greater Boston Area and runs his firm with his awesome wife, Gina, and he happens to be one of my favorite people in the world, not just the industry, I actually mean the whole world. Ali is truly the best. Now, before we delve into our topic for the week, Ali, welcome to Storii Time.
Ali: Well, Saad, Thanks for having me! I’m very very excited to participate in the podcast. Thanks for the kind words. It warms my heart. A little bit about me–my wife and I own a real estate law firm. We’ve had the firm for the better part of 20 years. We have a phenomenal team that we’ve built that is able to really provide a tremendous amount of service to our clients.
I come from a little bit of a wonky background. I used to be a scientist, discovered a gene, moved from California to the East Coast, went to law school at night, became a patent attorney, and then my amazing wife, Gina, convinced me to shift over from patents to real estate and I haven’t looked back. It’s been the best thing I’ve ever done.
Saad: This guy went from discovering genes to helping me close deals. This guy! Today, we’re gonna be talking about a super important topic–the actual price of an offer! It, obviously, gets all the headlines and most of the love in discussions and negotiations, but one thing that Ali and I deal with a lot, as do all buyers and sellers in the industry, but the contingencies of an offer. They’re just as important and we’ll walk through a bit of what’s happening in the marketing around those, both for buyers and for sellers.
Ali: Exactly. Contingencies. You gotta love them or you gotta hate them.
Saad: Exactly, or both. Now before we get into the meat of what we’re gonna be talking about. A little bit of news around contingencies and what’s happening in the market. Until recently, there was a six- to eight-month timeframe where contingencies were back in full force. Buyers were keeping all of their contingencies, meaning the majority of the risk was on the seller and buyers were able to protect themselves. Not anymore. Now, we’re starting to see those contingencies come back.
Saad: Let’s start with inspection contingencies first. Waived inspections. Everybody hears about those. Basically, buyers are waiving their right to an inspection prior to closing. But one thing that’s quite common to kind of combat that is what’s called the pre-offer inspection which allows buyers to essentially get an inspection, prior to submitting an offer. This allows them to have the comfort to waive their inspection contingency, which can be quite powerful. Something for buyers, if you’re not aware of that, this could be something for you to consider. Agents use that to your advantage and to your client’s advantage when helping them land a property that they’re excited about. Sellers keep that in mind, as well, especially if you see somebody that you like. You can basically offer that up to the buyer, as well. Hey, do the inspection early to reduce the risk on you as the seller.
Saad: Another thing to note is a recent trend on mortgage contingencies. Buyers are using all types of tax tactics to get their offers accepted. One of the key things is getting pre-underwritten. Going through the pre-underwriting process by the lender does two things. Number one: Shortening the timelines to closing, which is always attractive to the seller. And Two: allowing you to waive your mortgage contingency. Basically, you get a mortgage commitment, in advance of when you normally would, allowing you to have the comfort to waive your financing contingency as part of the process. Ali, I missed on those two things or anything you want to add?
Ali: I think you’re a hundred percent on point on all of those. I think despite the fact that these buyers are getting pre-underwritten and the attractive short timeline, with regards to their transactions, I still am not a fan of having them waive mortgage contingency. We’re gonna dive deep into the elements of mortgage contingency and why I strongly discourage it. I agree with you, unfortunately, that’s the current trend and we are still dealing with the sellers market and the sellers love it when those mortgage contingencies are waived with the timeline of the transaction is shortened.
Saad: It’s worth adding too, as we go through these contingencies, we talk about contingencies that are waived. And Ali, I’d love your take on this too: I would say a mortgage is one, if somebody is getting a mortgage, the one that is least comment to see waived as opposed to inspection and appraisal contingencies. Would you agree?
Ali: Yeah, I totally agree with you. I mean, that’s a really strong contingency and to waive it, you automatically put at risk your deposit. So, I think that’s the reason why that’s the last contingency that people drop.
Saad: We have an example of that, that I’ll share with everyone a bit later in the episode.
Saad: Let’s jump into the individual contingencies just so our audience can understand what they are, why they’re important, etc. So, first, let’s jump into the inspection contingency: a really important contingency. So first off it’s a clause in the offer that allows the buyer to back out of a deal without penalty or they can request a credit-based on what’s found in the inspection. There’re three routes a buyer can go when using their inspection contingency or when it comes to the language in the offer regarding the inspection contingency. First, they can waive it, which means that they waive their right to an inspection prior to closing. Two, they could keep it, which means they can get the inspection, and then based on the findings of the inspection they can request credits or back out of the deal. All those kinds of things depending on the parameters of the inspection contingency. And the last piece, which is being used more and more is putting a cap on the inspection contingency. I have a lot of clients who will put a $5K cap, $10K cap basically telling the seller, “Hey, assuming the cost of certain items above a certain number, we’re still gonna remain in the deal or we’re not going to ask for a credit.” There are some nuances to consider on that, which we may or may not get into during the episode. Those are the key elements when it comes to, a contingency, so there are a few things that go into that. Number one, when the inspection has to be done, that goes in the offer. Who will be doing the inspection–that’s something sellers and their agents will ask. When can the buyer inform the seller of the results of the inspection? If there’s any credit that’s being requested. If the deal is still happening and proceeding to the purchase. If there’s any renegotiation that needs to be done, there’s typically a date in the offer that’s mentioning that. And the last piece is the communication from the buyer must accompany the relevant portions of the inspection report. If you’re requesting any credit, some sellers and their agents are much more strict about this than others. Especially, if they don’t have any backup offers. They’ll be requesting some information, directly from the inspection report, regarding negotiation items and things like that. It’s not uncommon for that to happen.
Saad: Now the next piece, Ali, I’d love for you to dive into is why the inspection contingency is important, particularly from the buyers’ lens.
Ali: You’ve basically hit all the various points as to why this particular contingency is so important. Especially when you’re dealing with a property that is decades old. You’re not buying a brand new home and I think as buyers, you need to be mindful that you’re not buying a brand new home. You’re buying a used home that may have issues with it. It becomes important because you are going go in with your eyes wide open. You’ll understand what are some of the defects that the home has. You’re gonna be able to evaluate the pros and cons. I think you’ll agree, Saad, that the best strategy post-inspection is to put together a long list for yourselves, have a really candid conversation with your agent and really divide that list into two separate categories. One category is a list of minor items, which by the way is probably going to be very long. And a list of major items and most likely that list is going to be rather short. And I think you present both lists to the seller side and the strategy there is that you’re being equitable, you’re being fair, you’re being reasonable. We’re gonna assume all the minor stuff, we don’t want you to handle that, but these few major items really would like for you to take care of. Now, taking care of comes in multiple flavors and I think you can speak to that. Basically, you can either have a reduction in the purchase price (price concession), you can have it structured as a closing cost credit (and all that simply means is that a particular dollar value is associated with the work that needs to be done and then the seller will give the buyer a credit to offset their closing costs at the time of the closing and then those closing costs are: prepaid, points, general closing costs, so that really deuces the amount of money that the buyer has to pay at the closing), and the third option is for the seller to actually take care of those items prior to the closing and we’ll craft language around that. So, from a buyer’s point of view, that is a really really strong contingency and something that could be weighted and a discussion should be had with their agent to be able to make sure it’s something that they want to waive or not.
Saad: There’s going to be situations where, for example, a property could be sold as is, right? They’re not going to want to do any repairs or they may not even want to do any like credits. I would say to buyers, don’t be scared of that. There’s always room for negotiation. That’s a phrase that most people need to hear. In a seller’s market, the balance of power does shift where there’re going to be fewer things you’re going to be able to ask for, as a buyer. You’ll see all the types of things in a listing, in all types of languages, but just know that everything is negotiable. I think it’s important for you to have an open dialogue with your agent.
Ali: You and I will agree real estate is really, really emotional. I think buyers become really emotional, especially when they bring baggage to the table. That baggage is they’ve lost out on 2, 3, 4, 5 other deals and it’s especially again, in the seller’s market where there are multiple offer situations. And I think that discussion needs to be had. “Do I really want to go into this and waive the inspection on this thing and then end up with some potentially significant expenditure that I should have to solder after the closing?”
Saad: So, one of the few things I know we touched on a little bit, is the fact that it’s a sellers market. If you have an inspection contingency or any language around an inspection contingency, it does make the offer less attractive to sellers. Is there anything else you feel a buyer needs to keep and mind? Then we’ll jump into sellers.
Ali: No–the main thing there is that the more contingencies you add to your offer, the weaker you make your offer. That’s what it boils down to. So, you’re going to have to weigh the pros and cons of having to waive that. In fact, the proper strategy may be the one of a pre-offer inspection, as you mentioned. Where you go in there, it may not be as detailed as a full inspection, but at least you go in there with a contractor or a licensed inspector and they’ll take a look and they’ll give you either a thumbs up or a thumbs down. In the eyes of a seller, that’s a little bit more attractive than having to take the property off the market for 5, 7, 8, 10 days, while you do your inspection and review the inspection report.
Saad: One really important thing for everyone to keep in mind is that as a buyer the changes are you’re not buying a brand new home. There’s always something that na inspector is going to be able to find–small,m medium, sometimes large– so you need to set proper expectations for yourself.
Ali: Now, let me ask you a question. Saad, do you believe in pre-listing inspections? This is on the seller’s side.
Saad: On the seller side, I have yet to do one yet. Especially in the current market. Most sellers will just do a seller’s disclosure, so that’s been the common route that sellers tend to take.
Ali: Makes sense.
Saad: But, pre-offer inspections, those are becoming a more and more common route that sellers tend to take.
Ali: Makes sense
Saad: but pre-offer inspections are becoming more common. I’ve had tons of clients do those. Especially now, we’re into the spring market and people are getting used to these higher rates and the low supply in Greater Boston. Things are getting crazier and they need to protect themselves as best as they can. Pre-offer inspections tend to be much more common.
Ali: So, again, you talk about not having enough inventory. This is a pretty compelling crazy statistic. I heard this about a week and a half ago. 5,700 total units are available in the entire state!
Saad: In all of Massachusetts?
Ali: In all of Massachusetts! They say in a healthy market, you’re looking at 25,000 to 30,000 units. I think we’re dealing with some really, really tight inventory.
Saad: Keep in mind, we’re approaching the spring market. This is when inventory should be highest. Where we have a fifth of what is normally out there around this time. So keep in mind you’re not buying a new home. That’s extremely important to consider when you go into a situation where you have an inspection. Ali, let’s talk about sellers. What do sellers need to keep in mind about inspection contingencies and how to prepare for them?
Ali: Well, listen. There’re some sellers that I have interacted with during my career who like pre-listing inspections. They’ll get an inspection done. They’ll go into this with their eyes wide open. They know what kind of issues the home may have and they’ll address those in advance. So that could be a seller strategy.
But again, in the seller’s market, I don’t think very many sellers are going to do that sort of thing in advance. As a seller, I would say weigh your options, in terms of the offer pool, and see which offers are the strongest and not necessarily the highest. You can have a really, really high offer and that offer could have 4 or 5, 8, or 10 different contingencies including an inspection contingency. I think the highest is not always the best. Take a look at the overall totality of the offer and make an informed decision as to which offers the strongest view
Saad: So, let me ask you a question, Ali. What are your thoughts and maybe explain to the audience, what an information-only inspection is?
Ali: I love that. That’s just such a great play on words.
Saad: I mean, what inspection is not for informational purposes?
Ali: I guess the way it’s structured is to ease the mind of the seller. “Listen, Mr Seller, I’m doing this inspection and you went through the elements of the inspection. There’s a certain dollar threshold with where I need to provide portions of the relevant portions of the inspection to you and so on and so forth and you have the option of terminating.” But, for information purposes only inspection does not give the buyer the right to renegotiate the deal, make requests of the seller for repairs, ask for concessions, and for that matter, or to terminate the contract based on the inspection itself. So it’s really for the purposes of, I’m gathering information because I want to know after I close on the deal, what are some for the things I gotta fix.
Saad: So, let’s be clear. With that information-only inspection, they legally cannot back out of the contract. They can back out of the contract and forego their deposits or are you saying they can’t back out at all?
Ali: That’s how it’s structured now. We don’t know whether that buyer could use the results of the inspection, keep quiet and use other contingencies in the transactions to be able to walk away from the deal We don’t have a crystal ball and we don’t know in what propensity of the buyer may be, but the way the informational purposes only inspection is structured to be able to give the buyer the ability to inspect for their own information and not give a second bite at the apple.
Saad: Right. One thing for sellers and buyers both to be aware of s the timing of that inspection. Sellers would love to see if you’re doing an inspection, if you’re doing an information-only inspection, to have that happen after the purchase in sale. The agreement is signed. The reason for that, at least from my experience, is then the buyer has paid a pretty good amount of deposits, part of their down payment, part of the purchase price. They’d definitely be foregoing at least that amount if they were to back out. Just a tidbit worth mentioning when it comes to information-only inspections.
Saad: So let’s jump into the next one! Appraisal contingencies. What is it? So it allows what an appraisal contingency does is it allows the buyer to back out of the deal without losing money. They’ve paid, to that point their deposits or they can renegotiate the purchase price based on the appraisal report. What an appraisal report is, it’s an appraisal. An appraisal is ordered by the bank if you’re getting a mortgage it puts a value on the property. The value could be less than equal to or greater than the purchase price–if problems arise, the appraisal value is less than the purchase price. We can talk about that in a second. What all this means–there are three options similar to inspection contingency: buyers can waive it, they can keep it (which essentially means if the appraisal comes in a penny below the purchase price, the buyer has the right to back out or negotiate), the third piece is they can put what’s called a gap. That appraisal gap would tell the seller and their agent that I, myself, as the buyers, put a $10,000 appraisal gap to cover up to $10,000 between the appraisal and the purchase price in the event that the appraisal comes in low. That’s a really important tactic that lots of buyers are using these days. So, Ali why is the appraisal contingency important, and what do buyers especially need to consider?
Ali: I mean that’s a great question. I think an appraisal contingency is important because you’re buying a property. You are being convinced that a particular price, whether it’s emotional, or actual, justifies your offer and the appraisal is of neutral opinion of value. The actual value of the property directly impacts your ability to be able to get a mortgage. If the property doesn’t support the purchase price, that sort of throws the ratio of your mortgage, and your loan out of whack, and you will then be required to cover that gap. So if you’re buying a property for $500,000 you’re putting 20% down and now the appraisal comes in at 450, well that changes the ratio of your loan to value. You’re gonna then be required by the lender to cover that gap. Depending on whether you have that liquidity on hand or not, that could really challenge your ability to be able to secure this loan and purchase the property. That’s what really makes it important.
Saad: One thing to mention about the appraisal gaps and appraisal contingency in general, it’s very important to have a conversation with your lender about options in the event that a property doesn’t appraise. Some of them, especially many of our partners who Ali has worked with, can get pretty creative with the financing if those events happen. So always important to have that conversation with your lender prior to submitting an offer. Especially once the appraisal comes in and happens to be lower check in to see if there’s anything that they can do to make the process easier.
Ali: This actually highlights one of the things you mentioned. It highlights the importance of assembling a strong team. Having a real estate agency, a full-time real estate agent that is knowledgeable about ht market, have that individual be your quarterback. Listening to that individual’s advice with regards to assembling this strong team, that team will have a good inspector if in fact there’s an inspection contingency. A good lender that has access to all kinds of different not only creative products but also robust products would be able to sort out that scenario. They’ll be able to present that menu of products if you will. Of course, an attorney that’s going to be able to advise you on these sorts of terms and contingencies in an agreement and advise you throughout the whole transaction. Really important to assemble that team early on in the transaction.
Saad: Ali, do you know a good attorney by chance?
Ali: I mean, I know a couple. My wife Gina, is a way better attorney than I am.
Saad: You’re pretty good. Don’t discount yourself. Now really quickly about sellers. What do sellers need to keep in mind when it comes to the appraisal contingency?
Ali: Before accepting an offer with an appraisal contingency, do your homework and make sure that you know the fair market value of your home will support the price the buyer’s willing to pay for it. If it does not, then certainly don’t agree to an appraisal contingency or add that you’ll agree to an appraisal contingency but the buyer is going to cover that gap in the appraisal. I think that’s really the biggest take-home message for sellers. Do your homework in advance. Listen to your listing agent. Understand what the market can bear and try and shift that risk over to your buyer.
Saad: So, I literally had this situation yesterday. We got an offer for one of my listings. There is no language in the offer about appraisal contingencies, so make sure your agent is asking about appraisal contingencies. If there’s no language, it means it’s a standard appraisal contingency. That’s in the offer, so confirm, renegotiation, and make sure your agent is aware of what an appraisal contingency means. I can’t tell you how many times I’ve talked to new clients who used to work with another agent and they said they have never heard what an appraisal contingency is. To Ali’s point, make sure you have a good team of people who know what they’re doing. These are all things that can save you a ton of money and a ton of headaches. It’s a really, really strong point thereby Ali.
Ali: We’ve had clients at closings they’ve always said “Oh, I’ve had friends that have had closings and they went through so much stress and went through so much turmoil and I was preparing myself for that and this has been so smooth and this has been so great, really hasn’t been stressful.” And you know, we all say the same thing. Closing. It’s a testament to how strong your team is and how great your agent was.
Saad: Appreciate it. Thanks, man!
Saad: The last one. Mortgage contingency. What is it? A mortgage contingency allows the buyer to back off a deal without risking their deposits again. If they’re not able ot get approval for the mortgage they originally applied for. Now, there’re only two options with the mortgage contingency. You can either waive it or you can keep it. As Ali said, a majority of people who are getting a mortgage, tend to keep their mortgage contingency. That’s typically, you know, not a blocker for most sellers. In a seller’s market, you tend to see some people who are waiving their financing contingencies, which is what it is. It’s very important to understand why the mortgage contingency is meant to protect the buyer, so Ali, I’ll let you take that.
Ali: I think we need to appreciate the elements of the mortgage contingency to appreciate its strength and why it’s important. So the elements of a mortgage contingency say you know how much the buyer needs to apply for. Really important because once you say “I’m going to apply for this particular amount of loan, you can’t apply for more.” So, have a very clear and concise dialogue with your agent and your lenders on how much money you’re going to apply for, when you need to apply. Commonly, it’s three days from the signing of a purchase and sale agreement. If you apply outside of that timeframe, you could risk your deposit if there is a dispute.
When do you need to get a commitment from the lender? But first, let’s definite what a commitment is. Commitment is defined as a firm written commitment that does not have any conditions that are outside of the buyer’s control. Let’s say there’s an appraisal contingency, a condition in the commitment that’s outside of the buyer’s control. Let’s say we’re waiting for the results of tax returns from the IRS. That’s outside or the buyer’s control. So, commonly, we ask to review the commitment on behalf of the buyer, make an assessment of those conditions, and discuss it with the buyer to make sure they understand what the conditions of are and ask them to make a decision on whether they want to allow the commitment date to pass or not.
Now, if it’s not an acceptable commitment, the time commitment date needs to get extended or the deal has to be terminated. Those two are combined into the same request. So, if you don’t extend the date of your commitment and you cannot close, then you would technically lose your deposit, which can be tens of thousands of dollars.
So, really important. Again, this goes back to the strength of the team. Make sure you have a really good lender that can issue a really good commitment and make sure that you have an attorney and an agent that is going to keep track of that date and monitor it and extend it, if needed.
Saad: Right. Keep all of those things in mind, as buyers. Note what Ali had mentioned a couple of times, note that the more contingencies you have in your office, the weaker your offer is in the eyes of the seller. Of course, it’s important to keep in mind: you should be working with an agent that’s asking the seller’s agent about how many offers you have, and what’s the offer landscape looking like. Obviously the more offers, the higher the chances you can be competing with somebody, especially depending on the location that you’re looking in, the type of property, the purchase price, those kinds of things. You might be competing with somebody who’s waiving their financing contingencies. So, that’s just something to keep in mind as buyers. As far as sellers go, any tips for that side, Ali?
Ali: The sellers should keep in mind that if they don’t really have a first offer in hand until the contingency of the mortgage has passed. They’ve had an offer. They’ve signed the purchase and sale agreement. The buyers paid their offer deposit, their purchase, and the sale deposit, but until that commitment date passes, you’re really not sure until that deal is going to close. And as we both know, the contingency date for that commitment could be as late as a week or two before closing. So, you’ve kept this property off the market for that long and you have to keep your fingers crossed. This all highlights the importance of a good listing agent because good listing agents will make a phone call at the begging of a transaction and gauge how good that lender is to gain that confidence and pass that confidence onto the seller.
Home Sale Contingencies
Saad: Let’s talk really quickly about home sale contingency. Obviously, that’s not seen as much as these other three contingencies, but that’s something that is still important to understand. Home sell contingency is where the buyer has to sell their existing home in order to purchase the property. It’s important to know because the buyer cannot afford to purchase the home they want unless they sell their existing home. So, if you need the contingency, you should put it in there. But, there should be a clear and concise conversation with the lender before deciding how they want to proceed with that. Typically, the home sale contingency will be in the pre-approval letter that gets submitted with the offer. So, having that conversation with the lender is paramount. Anything else that you feel we should add about home sale contingencies, Ali?
Ali: Honestly, the biggest thing you’ve highlighted already, is having a candid conversation with the lender. There are some lenders that when they know the home sale contingency is required and needed, and because the timeline of the sale of the home is unknown, right, it automatically builds a level of risk. So what they can do, some lenders will offer what’s called a bridge loan. The bridge loan, it bridges two properties. It’s a loan that’s offered that facilitates the purchase of their property, so they don’t necessarily have to have a home sale contingency there, because again, the more contingencies you have, the weaker your offer. So, they can buy the property and then they can get a loan that bridges their existing home that they own and the home they purchase. And then, the loan will disappear once the property is sold. So, that loan gets discharged, the proceeds of the sale will pay off a certain portion of that loan, and now you accomplish essentially, a home sale contingency without the actual contingency.
Saad: So, that can be a great way to avoid putting that contingency in an offer. Keep in mind this, offers are about 2 things: money and risk. The risk, we’ve talked about several of those components. We’ve talked about inspection, appraisal, and mortgage fees. These are all things the seller has zero control over, many of which the seller has zero control over. Home sale contingency they have the least control over, because they can’t do anything about the actual sale of the property on the buyer’s side. So, seeing that is a potential hurdle for the seller that they’re definitely going to factor in, especially if there are other offers on the table. Other important contingencies that we can just rattle off: reviewing the condo docs (if you’re getting a condo, there’s going to be condo docs, a budget, meeting minutes, there’s going to be plans, if it’s a newer condo, any plans you will want to have those reviewed by your attorney so you can typically make your offer contingent on the review of those documents), new construction (you can have that contingent on reviewing the plans, specs, fit, finishes, allowances, upgrades, all of that), tear down (you can have it contingent on the seller cooperating with the buyer to obtain the necessary permits to build the particular home that the buyer wants to build). Any others that, Ali, you wanna bring up?
Ali: I think that every scenario is unique and may beg it’s own unique set of contingencies. One out there, if you’re buying a piece of land you can build a contingency around a buyer obtaining the permit to build a particular home that they want to build. If it’s private sewer, it has to be contingent upon a seller providing a passing title five. For x of bedrooms, we’ve had situations where a title was provided and it was actually for a 3-bedroom septic but they’re buying a 4-bedroom home. So, that’s a red flag. If it’s a private well, there needs to be a contingency upon the well water results meeting EPA and DEP standards. If it’s an investment property, contingent upon reviewing all property contracts, leases, maintenance controls, rent, etc. So, you can create new contingencies as you see, depending on the deal and the sensitivity of the buyer and certainly the seller’s tolerance.
Saad: The key thing to keep in mind, I know it’s a seller’s market, is everything is negotiable. I’ve seen some funky things in offers. So, as Ali mentioned, you can create unique contingencies for a particular property if the situation warrants it. So, definitely, something for all buyers and sellers alike to keep in mind.
So, before we close out, I would love, Ali, for you to share a highlight and I’m gonna share one on mine, as well. An example of how contingencies are used out in the wild.
Ali: Sure, one of the contingencies that we mentioned at the tail end of our discussion was buying a condo. A lot of our transactions deal with condos and we had one recently where there was a contingency around reviewing the condo docs, budget, meeting minutes, plans and when we reviewed the condo docs and plans, one of the things that we do is present our analysis to the buyer. We said “Hey the unit, Master D says the unit’s X number of square feet.” They said, “no, because the listing sheet had it at Y number of square feet,” which was much higher than what the master deep was supporting. So the plans had it at a lower amount. The master deed had it at a lower amount and nobody wanted to pull the wool over anyone’s face. I don’t think there was any bad faith. They went off of the assessor’s database and that assessor’s database could certainly be wrong. So, that was a great contingency because it allowed us to be able to renegotiate the deal and discount the purchase price based on the delta of the square footage. And as we all know, in the city, the price per square foot could be rather large. That was a really good discount that was able to come out of that contingency.
Saad: Awesome! And another example is actually a deal that we worked on together. This client kept a majority of their contingencies. I believe they did waive their inspection contingency, but one of the key contingencies, as we discussed earlier, most people keep their mortgage contingency. That’s what this particular client did. There have always been significant credits that have been given out for inspection contingencies, you know $5K, $10K, $20K, $40K. With mortgage contingency, credit is not going to fix the problem. If the buyer is not able to approve, get the approval of the mortgage, there’s no credit in the world that’s going to fix that issue unless they get a massive gift of some kind. We had a client that kept his mortgage continency and a week before his commitment was due, his mortgage commitment was due, this poor guy lost his job. He lost his job because he kept his mortgage contingency, he had that point he had paid about $50K in deposits between the initial offer deposit, the purchase, and sale deposit. He got all of that back in mortgage contingency. He’d be $50K poorer and probably in a much much more difficult position to purchase property a few months later or a year later. So, it can really put you behind the eight ball if you’re not careful with your contingencies. It happened a week before the commitment, a bit of bad luck there but thankfully for the client he was able to get his deposits back because he kept his mortgage contingency.
So to close things out, folks, remember, whether you’re a buyer or a seller, offers are about two things: money and risk. The risks lie in those contingencies. Understand them, and have a team around you that understands them because they can save your ass. You need to be very methodical and work with your agent, your lender, your inspector, and your attorney to determine what level of risk you’re willing to take on as a buyer waving contingencies. No two situations will have a cookie-cutter approach but ti’s extremely important to understand what levers you have at your disposal and to understand the situation with the offer that you might be submitting.
Saad: Ali, thanks so much for jumping on with me today. I’m sure this is the first of many episodes with you. Hope you had a great time!
Ali: Oh my god. Thanks for having me! I’m excited about Storii Time. I’m excited to be on again, and in fact, I would like to have my team on hopefully in the next episodes to come.
Saad: That will be amazing and your team has been such an integral part. I’m sure they’ll be an integral part of Storii Time too.
Saad: But to everyone else, thanks for joining us on Storii Time. I’m Saad Munir. Until next time.