Hi all,
I am quite smitten on a property and keen to make an offer however would like some guidance before I do.
I’d like to put a statement in the conditional offer such as “subject to completion of due diligence†– is such a broad statement permissible or do I have to be more specific?
Also the vendor is asking for offers above the quoted price – is it standard practice to make an offer lower than this and negotiate or when they say offers above $x that sets the threshold and offers below are not valid?
This is my first IP so I’m still working my way through and do not want to full into any traps if I can avoid it.
Thanks in advance..
Squash<<<<subject to completion of due diligence>>>>
Never heard of such a thing. But I would NEVER make an offer on a property unless you did your due diligence. Your only asking for trouble.
When I make an offer for a property, I always ask the agent how much do you reckon the vendor wants. Most bad agents give you a price, so you have a starting point at which you know their asking price.
Do your due diligence and see what the property is really worth. Never offer the price the agent wants.
Standard clauses are – subject to finance and subject to building report…..
Good luck with it.
Hi Squash,
Welcome to the forum!!!
Point one, re your conditional statement, yes it is too broad – how long is this due diligence meant to take??? Either way, I don’t think you can include it, may you may wish to get confirmtion of this from a legal professional. Do bear in mind that you have (depending on which state you are in) from 3-5 days “cooling off” period after your offer has been accepted to withdraw it.
As for the offer, the vendor can ask for whatever he/she wants, and I have seen this happen from time to time, but whether they get it is another matter. Offer what you feel it is worth, and if you’ve done your homework, you should have a good idea of this.
Good luck with it, and please do keep us posted on your progress.
Jo
Thanks Yack,
I should have mentioned that I have been doing my DD and am not going to make an offer unless I can get out of it.
Subject to finance is not an issue as the bank has already given me pre-approval and the building is brand new and has a 7 year warranty. That said, I guess it would still be best practice to get a building inspection done.
My rationale behind such a condition (subject to completion of DD) is to give myself an out should something not be right (I always forget something).
Cheers,
SquashHi Squash,
Firstly, REGARDLESS of whether you have pre or actual bank approval (the agent and vendor don’t know this) and as such you can (and legally I have always been told you should) include the clause “subject to finance” I do it all the time and always purchase for cash (hence don’t even need it). The reason to include it, is because it is a “legal” out, and all you have to say is “the bank has declined the finance” (and if you word up the bank they will back you on your decision to pull out and assist with your little white lie!!!!
Secondly, if you haven’t done your due diligence, WALK AWAY NOW…..it’s not like you’re running down to the supermarket, and forgot to get X from your list, this is a property, and as such you can’t just run down and add bits!!! Apart from anything else, it is someone else’s livelihood, and if you’re not READY to buy it, then leave it to someone who is!!!!
Jo
Manic,
Here’s a post I put in another thread about inspections on strata title properties. It might be useful to you. It was in reference to someone asking ought a PBI be undertaken for bank loan purposes, so the content reflects that. As your unit is new, the info below may not be relevant either- hehe. You might wonder why I’m posting it at all, in fact, such is the irrelevance of it. However, give some thought to the info below, with regard to the SIR.
Have you thought of buying a unit that’s a few years old? Often, if there are any problems, they will have been identified. Also, you can get more of an idea on “real” market value, because the units may have been resold from off the plan already.
__________________You don’t HAVE to do a BPI (Building and pest inspection) for a new unit, unless your bank demands it. I didn’t get one for a newish unit I just bought, but I did get a Strata Inspection Report- essential viewing, in my opinion
Indeed the SIR showed all issues about the building, including any building problems. So you’ll get the dirt on what’s going on both inside the building, and out. Whereas a BPI will only identify problems that might exist, a SIR will tell you about what is being done to address the issues. You’ll find in it letters from solicitors engaged by the BC, reports by engineers, reponses by builders (remember, builders won’t necessarily take responsibility for any problems- they might say “We undertook work with building standard number blah in accordance with the fire protection act blah blah”. If the builders don’t take responsibility, owners might be up for individual special levies to get the building up to scratch. Any special levies forthcoming should be identified and stated in the SIR.The SIR is a report that is done by a company that does that sort of thing for a living – it’s completely independent. It cost me $150. It will alo identify if there are any tenant issues, and any financial issues. It not only states these things, but analyses them.
So I reckon if you are going to make a choice, get the SIR. The BPI might say there is some real problem occurring, and you’ll get all worried. The SIR will state that the problem is known and is being fixed in September- so why worry?
kay henry
Squash,
What do you mean by due diligence?
Just put in what you mean, ie: building inspection, pest inspection, subject to finanace – whatever.
Price – you can offer whatever you like. They can ask for whatever they like. The first no isn’t the end of a deal, it’s the start of negotiations.
Remember – If you let the REA set the rules of the game, as a buyer you’ll always lose. Change the game.
Cheers,
Aceyducey
In theory, there is no difference between theory and practice. But, in practice, there is.– Jan L.A. van de Snepscheut
Hi all,
I have crunched all the numbers and it came out +ve and as such have placed a first and final offer with 30 days settlement subject to finance.
Hope this is a winning bid, but if not, then I walk away and its back to looking
Everything that I have looked at in this town is doesn’t work, so maybe to NZ I go???
Thanks to all who provided me with their advice
Later..Good luck with the offer ManicSquash, and don’t be disheartened if it is rejected; although it might mean starting again, you may well be surprised to find that it all worked out for the best and the next place you find supersedes the last!!!
Jo
hi all,
just got the word that my offer has been accepted. First IP – woo-hoo!
Later..
Why do this ???
The result may be worse for the intended buyer.as such you can (and legally I have always been told you should) include the clause “subject to finance” I do it all the time and always purchase for cash (hence don’t even need it). The reason to include it, is because it is a “legal” out, and all you have to say is “the bank has declined the finance” (and if you word up the bank they will back you on your decision to pull out and assist with your little white lie!!!!
Yes do use the subject to finance clause but use it as it is intended.
That being to get finance for the intended property.
If you abuse the clause and think you can get away with it by implicating the finacial institution you are a novice.
If you do not want the property why bother putting in an offer?
A white lie is still an illegal act.
Not just unethical.Why would the bank want to lie for you or me?
Once you have signed a contract subject to finance and it has been accepted by the seller you have a legal obligation to obtain the required finance within the set time of the contract.
If the property has no interest for you after the cooling off period, your legitimate out, don’t think that the finance clause alone will save you.
You must endeavour to get the finance from what ever source avalliable. That is any legit finance institution.
If you breach the contract as the buyer the seller has rights too.
Do not forget the seller has a bunch of rights as well.
Some include compensation from the inteded Buyer.
They are legally entiltled to excersise their rights.In a passive market think very carefully about what you do want and do not want.
Always do your research first ask lot’s of questions and then deliberate carefully before signing any contract.
Most of all Do not LIE .
Originally posted by Clement:Why do this ???
The result may be worse for the intended buyer.as such you can (and legally I have always been told you should) include the clause “subject to finance” I do it all the time and always purchase for cash (hence don’t even need it). The reason to include it, is because it is a “legal” out, and all you have to say is “the bank has declined the finance” (and if you word up the bank they will back you on your decision to pull out and assist with your little white lie!!!!
Yes do use the subject to finance clause but use it as it is intended.
I don’t EVER INTEND (nor have I ever) to walk away from ANY offer I have made to purchase. It is a recommendation made by several legal professionals, and prior to their advice, I never used to include it. It was suggested as an “out” in the event that something was not “right” and considered one of the simplest ways to exit without too much legal hassle.
That being to get finance for the intended property.
If you abuse the clause and think you can get away with it by implicating the finacial institution you are a novice.
No, I don’t THINK I can get away with it, I KNOW I can, because it is perfectly LEGAL!!! Change of circumstances, which in any event, is really not an issue as long as it is within the cooling off period, a reason DOES NOT HAVE TO BE PROVIDED!!!! Furthermore, you know nothing about me, nor the law for that matter, and to call me a novice because of your moral judgement call is indicative of your own ignorance!!!
If you do not want the property why bother putting in an offer?
A white lie is still an illegal act.
Not just unethical.Get off the soapbox!!!!
Why would the bank want to lie for you or me?
Because they want my business!!! FYI banks tend to favour some customers over others; it is not right (and I don’t condone it) but nonetheless they do tend to treat some people better than others.
Once you have signed a contract subject to finance and it has been accepted by the seller you have a legal obligation to obtain the required finance within the set time of the contract.
Within the “cooling off” period be it 3 or 5 days (depending on which state you reside) you are BOUND to nothing and can withraw at any time, for whatever reason, including something as trival as “I changed my mind”!!!!
If the property has no interest for you after the cooling off period, your legitimate out, don’t think that the finance clause alone will save you.
As I said I have never needed or wanted to use it; but I have seen this happen and I think it is both legitimate and within ones right. I may have decided to get finance at the time, and then days later, might have been generously given the money by a friend or family member whatever, but basically there was no longer a need to borrow; who are you (or anyone else) to tell me what to do???
Always do your research first ask lot’s of questions and then deliberate carefully before signing any contract.
Again, as I said, you know NOTHING about me or my investment experience, strategies or portfolio, so unless you do, I would appreciate you go preach to someone who would benefit from it, and not to the converted!!!!
Most of all Do not LIE .
Are you serious???? Oh well guess I’ll burn in hell….fine, as long as you drive; I’ll enjoy the ride!!!!
WOW!
Clement, you have the moral high ground and that would be fantastic if everyone would be on the same page! Investing in property is a business and one would hope that all play by the rules as set out by Law. I guess if investors follow the Law then there isn’t much to be done but let them continue. Having said that, it would be foolish to think that REA’s don’t take note of investors and their tack ticks (?spelling?) so you can burn your bridges if you keep on screwing sellers around and trust me REA’s talk to each other, I have seen it! You burn one they soon help you into a bad investment. What goes around, comes around!
This forum is not intended to ‘breed’ investment rats, but for the experienced to share with the inexperienced. Take the advice or leave it, your choice.
The diversity of strategies on this forum is vast and sure to be of benefit to all – what you do is up to you! Don’t put your ideals onto others.
We are all different.
Thank God on your knees for that!Cheers
C@34
Calvin,
Just to make a clarification here, I am NOT saying one should screw around a vendor, nor the REA involved in selling the property; what I AM saying is that the “subject to finance” clause is not set in concrete and as long as it is within the cooling off period, no law has been broken. Furthermore, I WOULD NEVER ENCOURAGE ANYONE to pull out of an offer UNLESS their circumstances changed so drastically that there were no other alternatives.
I am not making light of this “out” clause, I am merely stating it is another legal option, but WOULD NOT RECOMMEND exercising that right. Pulling out simply because “you can” is IMO just playing games, and serious investors don’t play games.
Morals are fine, and good conscious should wherever possible prevail. As I said, I have never made an offer on anything I had no intention of buying, and I have a fantastic relationship with EVERY SINGLE REA I have ever had dealings with (either as a buyer or a vendor myself), some have become great friends, but at the end of the day, they too understand that business is business.
Cheers,
Jo
I hear you Jo,
I didn’t like the tone taken by Clement in passing “judgement” on others. Most of us have skeletons in our closets (because most of us are human), so stating that Clement thought people screwing vendors around is disgusting in their eyes is stating an opinion; putting it the way it was put made it a judgement. My opinion, anyway.Cheers
C@34
I remember a story from NZ – and surely their laws are based on similar principles to ours…
Anyway a purchaser changed his mind about the property and used the finance clause to get out of the contract. Somehow the vendor found out that it was not due to unsuccessful finance applications and took the matter to court. The judge ruled that as the purchaser had only made one application with one bank in the 2 week period he had not met the actions one could expect of a reasonable person. The purchaser appealed and counter sued, blah, blah, blah
When it was all said and done the vendor was awarded a large sum from the purchaser for breaking the contract without lawful reason…!
You can tighten up your clause by making it similar to “subject to finance from bank xyz for the sum of not less than $xxx”
Cheers,
GregGrreg,
The REIV contract notes have allocated space for both the details of the lender and the amount of finance being borrowed to be specified. However, I believe there have been instances where this information was (deliberately???) omitted. Which of course would be a legal no-no (I’d imagine).
I’d guess that the purchaser in your scenario, did not take the “reasonable” steps expected of him/her with respect to buying the property; did not offer justifable cause for terminating the contract and as such had to pay the consequences, literally (and IMO rightly so)!!!
I guess the bottom line is, if you don’t want the property, don’t make an offer. Which means you don’t need to worry about including ANY “subject to” clauses because there won’t be a contract in place in which you need to try and worm your way out of!!!! TOO EASY…
Jo
TOO EASY…to be sure, to be sure… Monners,
Grreg had a good point that the finance clause should detail the name of the lender, and as such if they reject the finance application, then there is no compulsion on you seeking finance from an alternate lender.
Hence the contract falls over, but the vendor or their agent can demand that you prove by way of a letter from that lender that they have refused finance.Thje finance clause is also a legitimate “out” clause if you decide not to proceed. COnsider the following:
You’ve read up on one of the investing gurus books, and they advise you put in “Multiple Offers”. say ten or twenty or more, etc.
So you go ahead and do just that.
But you can only afford to buy two properties.
Unfortunately, five of your twenty offers came back accepted, so you invoke the finance clause, legitimately now, as you can’t afford to settle all the accepted offers !! HOWZAT !!BTW Congratulations Manic Squash on getting your offer accepted….(the original poster on this topic.)
Cheers
KPHi kp,
Goodness, multiple offers!!! [wacko]
I realise this does occur, but for me at least, I will stick to just ONE contract at a time!!!
Jo
Originally posted by kp:Thje finance clause is also a legitimate “out” clause if you decide not to proceed. COnsider the following:
You’ve read up on one of the investing gurus books, and they advise you put in “Multiple Offers”. say ten or twenty or more, etc.
So you go ahead and do just that.
But you can only afford to buy two properties.
Unfortunately, five of your twenty offers came back accepted, so you invoke the finance clause, legitimately now, as you can’t afford to settle all the accepted offers !! HOWZAT !!
Cheers
KPWell it might seem like a very smart(ish) [baaa] thing to do, but what would it look like from the vendor’s pov?
Would you like that to happen to you if you were the vendor?[ohno]
And also, you will lose your good reputation with the RE Agents. They might not even be bothered to present your offer to the vendor next time you come in. [medieval]
Wouldn’t you like to be known as someone integer and trustworthy?
Celivia
Indeed the SIR showed all issues about the building, including any building problems. So you’ll get the dirt on what’s going on both inside the building, and out. Whereas a BPI will only identify problems that might exist, a SIR will tell you about what is being done to address the issues. You’ll find in it letters from solicitors engaged by the BC, reports by engineers, reponses by builders (remember, builders won’t necessarily take responsibility for any problems- they might say “We undertook work with building standard number blah in accordance with the fire protection act blah blah”. If the builders don’t take responsibility, owners might be up for individual special levies to get the building up to scratch. Any special levies forthcoming should be identified and stated in the SIR.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
