After you make an initial offer on real estate, the next phase of the process is negotiating a final agreement. But before I go into tactics and situations, let’s go over some basic terminology for the beginner. As a minimum, you’ll need to understand these terms:
In contract negotiation, the counter offer is actually a completely new offer by the other party of the contract. Contractually speaking, the other party has completely rejected your offer, and offered you something else. This is sometimes missed because a single written contract is normally used (to simplify the process) thus some might think the contract is being “modified” when it is really being declined and re-written.
An initial payment as consideration for acceptance of the contract.
Option / Feasibility Period
For the buyer, this is a relatively new concept but undeniably beneficial. Think of it as earnest money on earnest money. If the earnest money was $3,000, you might have an option payment of $100. What do you get in return? The exclusive right for a period of time, for no reason whatsoever, to cancel the contract and get your earnest money refunded. Pretty cool, huh? It makes it easier to establish a contract, and allow the buyer to perform inspections, etc. without having to have a lot of out clauses in the contract for such things.
Time is of the Essence Clause
Be careful is the seller is wanting you to agree to a time is of the essence clause. What this means is that if you don’t close the deal by a specified date, you are agree to some serious consequences.
Tenant Estoppel Certificate
This certificate is very important in the case of purchasing units that are already rented. This certificate basically ensures that each tenant isn’t in default, the landlord is in default, and verifies the important details of the lease agreement. Now, in your contract, you should specify that the seller provide copies of all lease agreements for the property. But you can use the estoppel certificate to verify those contracts. This is highly recommended!
Property Condition Form
This is a form filled out by the seller that states any known issues with the property. If something is discover after your purchase, and it can be proved that the seller knew about the problem, then you have grounds to obtain a remedy from the seller. Make sure you get this form filled out and signed!
Anything outside of the normal contract specifics are special provisions. Things like detailed repair promises, providing a walk through contingency (to verify property is still in the condition stated before closing), provisions that will survive closing, etc are some examples of special provisions. Watch out for a situation like I had recently, where I had two separate contracts for adjoining properties, but in the special provisions section both contracts stipulated that the property must close along with the other contract, ie. if one property didn’t close, the other would become null and void. In my case, I accepted the provision, did my due diligence within my option period, determined that one property was not worth the investment, and renegotiated to cancel the other contract, while maintaining the contract I had on the other property. This is a beautiful example of how important the option / feasibility period is in real estate contracts.
There are many other terms frequently used in real estate contracts. But these are the ones that I put the most weight on when making my own deals. In my next post, I will be expounding some tactics you can use to negotiate the right deal for you.