馃攳
Real Estate Contract Contingencies | Real Estate Exam Prep Videos - YouTube
Channel: The Real Estate Classroom
[0]
[Music]
[0]
hey everyone my name is paul vachesky
[2]
and welcome to the real estate classroom
[4]
youtube channel where our mission is
[5]
simple and that's to help you pass your
[7]
real estate exam the first time
[9]
real quick as always give this video a
[11]
thumbs up hit that red subscribe button
[12]
click on the notification bell
[14]
in today's real estate exam prep video
[16]
we're going to discuss common
[17]
contract contingencies say that three
[20]
times really fast common contract
[22]
contingencies
[23]
all right let's get to today's video
[27]
so in today's real estate exam prep
[28]
video i'm going to discuss what's called
[30]
common contract contingencies or
[34]
contract contingencies now
[35]
understand that any contract whether
[38]
it's real estate or otherwise
[40]
can have contingencies in the contract
[43]
they are provisions that are added into
[45]
the contract
[47]
and the parties have to agree to those
[50]
contingencies
[51]
so in real estate the buyer may
[54]
put certain uh contingencies in that
[57]
contract and then the buyer and seller
[59]
need to agree to it
[60]
a tenant may put a certain contingency
[63]
in
[64]
a lease agreement and the landlord and
[66]
the tenant have to agree to it
[68]
so let me give you an example let's say
[71]
that you go to the
[72]
dealership and you want to purchase a
[74]
vehicle so you start negotiating with
[76]
that dealership
[77]
but you really want floor mats so you
[80]
may put in that contract
[82]
if the dealer put if the dealer
[86]
provides floor mats then
[89]
i will purchase that vehicle and if the
[92]
dealership agrees to it
[93]
then that contingency is in that
[96]
contract so
[97]
when it comes time for that dealer to
[99]
deliver the car
[101]
if those floor mats aren't in there
[105]
then you have redress against the
[108]
dealership
[109]
in a lease contract a common contingency
[112]
that a
[112]
tenant will put in there if they are a
[115]
military tenant they may put a
[117]
moving provision that if they get orders
[120]
then um
[122]
you know during the term of the one year
[125]
lease agreement then they can break the
[127]
lease
[127]
legitimately penalty-free uh in real
[131]
estate
[131]
typically we see the contingencies in
[133]
the
[134]
in the purchase contract and there are
[136]
numerous contingencies that you can see
[139]
i'll give you a story i remember one
[141]
time many many years ago
[143]
i was working with the buyer and we
[145]
submitted an offer
[147]
on a property that was for sale and
[148]
there was a an
[150]
engine that was hanging on change in in
[153]
the garage
[154]
it was a 350 big block or a 350 small
[157]
block i can't remember but
[159]
anyways the buyer put a contingency in
[162]
the purchase contract that said
[164]
that i'll purchase your home if the
[167]
seller agrees
[168]
to sell me that engine and so that was a
[172]
contingency that was put into the
[174]
contract
[175]
so anyways contingencies are very common
[178]
in real estate purchase contracts so
[180]
let's get to some common real estate
[183]
contingencies that we're going to see in
[185]
the purchase contract
[187]
the first the first one and most common
[189]
is probably inspection contingencies or
[192]
what we call due diligence periods
[195]
now depending on the part of the country
[197]
that you're going to be operating in you
[198]
may see due diligence periods or you may
[200]
see actual inspection contingencies now
[203]
a due diligence period is just simply a
[205]
contingency in the purchase contract
[207]
that says
[209]
that the buyer and seller agree to a 10
[212]
or 12 or 14
[213]
day they negotiate the time frame but a
[215]
certain number of
[216]
days or weeks or months uh to have
[221]
all your inspections done so for example
[224]
in residential
[225]
it is very common to have a 7 to 14 day
[227]
due diligence period so the buyer is
[230]
allowed
[231]
by the seller to have any and all
[233]
inspections that they want
[234]
done during that period if you're
[238]
buying industrial property it could be
[240]
months the the due diligence period
[242]
could literally be
[244]
weeks or months i've even seen a couple
[246]
of years it just depends on the type of
[248]
real estate that's in the transaction
[251]
an inspection contingency is more
[253]
specific so
[254]
the uh the home the the purchaser the
[257]
buyer may just want the roof
[259]
inspected or the foundation inspection
[262]
inspected or the well or the septic
[264]
so they're just going to put that
[266]
specific inspection request
[268]
into the offer then the the seller is
[271]
going to consider that
[272]
and if the seller agrees to it then they
[275]
have to allow that buyer to perform
[278]
that inspection now here's typically
[280]
what happens with all of these
[282]
contingencies in a typical real estate
[284]
purchase contract
[286]
whether it's the inspection due
[288]
diligence or one of the other ones we're
[289]
going to talk about
[291]
it's it basically the way it ends up is
[294]
the buyer is going to request that the
[295]
seller agrees
[296]
once the seller agrees the inspection is
[299]
done
[300]
and this and if the buyer does not like
[303]
the results
[304]
of the inspection they have a couple of
[307]
options
[308]
they can a say i i understand that the
[312]
well and the septic the the inspections
[314]
aren't very favorable but i'm willing to
[316]
move forward with closing anyways
[318]
we will deal with the issues after
[320]
closing
[321]
b they can ask the buyer or i'm sorry
[325]
this the buyer can ask the seller
[327]
to repair or fix or
[330]
somewhat some way some other way
[333]
compensate the buyer for that
[335]
deficiency so for example let's say the
[338]
air conditioner is bad
[339]
the uh the buyer can say we want the
[341]
seller to
[343]
re repair or replace the air conditioner
[346]
or the buyer may say
[349]
reduce the price by five thousand
[351]
dollars and we will take care of the
[353]
air conditioner after closing
[357]
that is an option now the seller doesn't
[360]
have to agree with that
[362]
if the uh if the buyer asks for
[364]
something
[365]
under that option the seller can say no
[367]
if you want the house move forward we're
[369]
not going to do anything
[370]
and then the buyer has a decision make
[372]
they can they can either say fine move
[374]
forward or they can just terminate
[377]
the contract and then c option c
[380]
is they can say you know what the
[382]
inspection report is too um
[384]
there's too many things i'm not
[385]
comfortable with it so we're going to
[386]
terminate the contract
[388]
now what these contingencies do
[390]
typically
[392]
is they allow the buyer should the buyer
[394]
decide to terminate the contract
[397]
to get to terminate the contract penalty
[399]
free
[400]
so they get their earnest money back and
[402]
and
[403]
you know it it uh it prevents the seller
[406]
from
[407]
suing under specific performance those
[409]
type of things so their contingencies
[411]
built in
[412]
build in typically protections for the
[414]
buyer
[415]
so the most common one here is again
[418]
inspection contingencies or due
[420]
diligence period let's look at number
[421]
two
[423]
another one is financing very common to
[425]
see a financing
[426]
contingency where the buyer needs
[430]
financing to purchase the home
[432]
and it's the buyer's ability to secure
[434]
financing and if
[435]
the buyer cannot secure financing then
[438]
they can terminate the contract penalty
[440]
free
[441]
now i know this question is going to
[443]
come up well well don't
[446]
buyers get pre-approval letters and the
[448]
answer is yes in the real real estate
[450]
world they do
[452]
but it's also true that pre-approval
[454]
letters are about as good as the paper
[457]
they're written on um just because a
[459]
buyer is pre-approved for a loan doesn't
[461]
mean that they're
[462]
it's ultimately they're going to get the
[464]
loan so that's why there's financing
[466]
contingencies put in the contract
[469]
number three the ability for the seller
[472]
to convey
[473]
or transfer free clear marketable title
[476]
meaning they're gonna
[477]
they're gonna convey convey ownership to
[479]
the new buyer
[481]
uh where the title is free and clear of
[483]
liens
[484]
and encumbrances so there's no child
[487]
support liens or mechanics liens or
[489]
judgments or things like that that's why
[491]
we do title searches
[494]
number four a survey there are some many
[496]
times when the buyer wants to have the
[498]
survey done now a survey
[500]
is uh is a process where you identify
[504]
precisely where the boundary lines are
[507]
and where the improvements such as
[509]
houses and barns and those type of
[511]
things where they are
[512]
located uh in conjunction with the
[516]
boundary lines
[517]
are there easements utility easements
[520]
and those type of things
[521]
on the property so a survey is going to
[524]
identify all those things and sometimes
[526]
buyers want to have that done
[528]
and again the contingency typically
[531]
reads
[532]
contingent upon a satisfactory survey so
[536]
the survey is done if there's
[537]
issues with the survey there are
[539]
boundary lines that
[541]
that are different than you thought they
[543]
were or there was an easement in a
[544]
particular place that's going to prevent
[546]
you from building a
[548]
barn then that will impact your decision
[551]
to buy
[552]
that piece of property and it allows you
[554]
then to
[555]
uh get out as a buyer get to get out of
[558]
the
[558]
the contract free and clear a penalty
[562]
number five wood destroying insects you
[564]
know in many parts of the country
[566]
termites are an issue so it is common in
[568]
those parts of the country to have
[570]
a termite inspection and also
[574]
not only the inspection but to see if
[575]
there was previous termite infestations
[578]
that resulted in damage to the property
[581]
number six a home sale contingency is
[584]
very common
[585]
so this is what we call the the domino
[588]
deal so let's say that i am buying
[590]
your house but i also own a house
[592]
currently and i have to sell my house
[594]
before i can qualify for financing for
[596]
your house
[598]
so i'm going to put an offer in on your
[599]
house
[601]
with a contingency called a home sale
[604]
contingency meaning
[606]
you're going to give me permission
[608]
you're going to accept the contract as
[609]
the seller or
[610]
as the seller of your property that says
[612]
paul i give you
[614]
30 days or 45 days or whatever the time
[616]
frame you want to negotiate to
[618]
sell my house so then i can move forward
[620]
with buying your house we're not going
[622]
to get into real specific details on it
[624]
but home sale contingencies
[626]
are very common number seven pre and
[629]
post occupancy is another one we don't
[632]
like doing them in the real real estate
[633]
world because there's a lot of bad
[635]
things that can go wrong
[636]
but they are still they are still
[639]
prominent nonetheless so
[641]
this is where we're allowing the buyer
[642]
to move in prior
[644]
to closing or the seller to stay in the
[647]
property
[648]
after closing and again there are a lot
[650]
of risk with this and we're not going to
[652]
talk about those in this particular
[653]
video but that is considered a
[655]
common uh contingency in a purchase
[658]
contract and then the last one is eight
[661]
and nine
[661]
this is more for commercial and
[663]
industrial type properties where
[665]
uh the buyer may be uh there may be a
[668]
legitimate reason why they're going to
[670]
need environmental studies
[672]
where this is where this does where
[674]
there is an environmental assessment
[675]
that's conducted where
[677]
there are impact studies that are done
[680]
maybe the buyer
[682]
has a particular intended use for this
[684]
piece of property and it's going to
[685]
require
[686]
zoning changes so they put a contingency
[689]
in the contract that says
[691]
contingent upon the
[694]
buyer getting approval from the zoning
[697]
commission or
[699]
a city council to change
[702]
the zoning and that's why in commercial
[705]
and industrial
[706]
transactions these due diligence periods
[709]
or these contingencies may be months or
[711]
years even
[712]
because these processes like change in
[714]
zoning
[715]
they're not a fast process we typically
[718]
don't see these type of things in the
[720]
run-of-the-mill
[721]
you know residential sale but very
[723]
common in the industrial and commercial
[725]
arena again these are just very common
[728]
contingencies
[729]
that you as a real estate professional
[731]
you're going to see in your
[732]
in your real estate practice and also a
[735]
question or two that
[736]
that might pop up on your real estate
[738]
licensing exam
[740]
now if you're going to continue studying
[741]
check out this video right here
[743]
and please do me a favor if you haven't
[744]
subscribed click the little circle to my
[746]
left
[747]
please please please do that it helps
[748]
grow the channel comments and questions
[751]
down below it's all i got in today's
[752]
video
[753]
i'll see you all in the next video
Most Recent Videos:
You can go back to the homepage right here: Homepage