You just received an offer on your property! Congratulations!
The offer looks good on its face. They’ve offered at or near your asking price. They’re even willing to close on your timeline.
Before you rush to accept it, you should review it for what we at McCoy Wyman would deem ‘Red Flags.’
First, some background…
“Contingencies” in contracts represent “out clauses” for buyers. Each one protects the buyer in the event of a particular “failure” giving the buyer a opportunity to void the contract and have their deposit returned. There are many types of contingencies built into the Florida Association of Realtors – Florida Bar (FAR-BAR) contracts used by nearly all real estate agents in this state. Standard contingencies include:
- financing – Buyer must obtain financing to complete the purchase. If buyer can’t get a loan within some agreed period of time (30 days, usually), the contract is voided.
- inspection – Buyer has the right to inspect the property (or have it inspected) for any issues during an agreed period of time (10 days or less, usually). If issues are found, buyer may be able to void the contract or have seller pay to correct these issues.
- title – Seller must be able to provide a marketable title to the property. If the title has any defects that can’t be corrected, the contract may be voided.
- sale of buyer’s property – Buyer must sell their existing home in order to afford the purchase. If buyer is unable to sell their home, the contract may be voided.
There are others, but these are the ones you’ll see most often.
Nearly all offers contain some combination of the above contingencies.
Cash-buyers are those who make offers without financing contingencies. That is, they offer to purchase your property without you worrying about their ability to obtain a mortgage for the purchase.
Now, the ‘Red Flags‘:
- Too many contingencies
If a buyer’s offer includes every standard contingency and adds even more (e.g., environmental conditions, zoning/land use, general suitability, partner approval), we’d be concerned that buyer isn’t serious and is simply attempting to “tie-up” the property to keep it away from other buyers. With so many ways to cancel, the buyer has effectively made the contract optional (for buyer, not seller). We’d recommend entertaining backup offers if you choose to accept an offer of this type.
- Long inspection period
As noted above, the inspection period is commonly 10 days or less. If a buyer demands a long inspection period, it may indicate that buyer will attempt to resell your property while it’s under contract. Many real estate investors “wholesale” properties to other investors using this method. If buyer is unable to sell to another investor during the long inspection period, the buyer will void the deal using the inspection contingency, but your property has been “pending” or “off market” for the duration of the inspection period.
Having an assignable contract isn’t necessarily a bad thing, but it does require more disscussion during negotiations. Some investors use assignability to “wholesale” properties to other investors. They, for a fee, simply assign their rights under the contract to another investor. By itself, this doesn’t cause any problems for sellers. However, when coupled with a longer than average inspection period, you can expect that a buyer, if unable to find another investor willing to accept an assignment, will void the contract.
- Very low earnest money deposit
If a buyer submits an offer with a very small deposit, it may be indication of low cash on hand, or of low committment to the transaction. The smaller the earnest money deposit, the less risk buyer takes by entering into the contract. If buyer defaults, seller keeps the deposit, but if the deposit is small, buyer hasn’t risked much, while seller has lost days on the market.
An all-cash offer from McCoy Wyman comes with no financing contingency and a shorter than average inspection period. If you’re interested in selling your property, please visit our Sell Your Home page, or give us a call at 813-489-9600.