What to Expect from a Home Inspection
Buying a home can be overwhelming, especially if you’re doing it for the first time. Even after your offer is accepted (hooray!) you're dealing with paperwork, deadlines, negotiations, and a seemingly endless list of things that have to be done before the sale is actually finalized. You might be tempted to skip or shortchange parts of the process to get to closing faster (and we don’t blame you!), but there's one step every home buyer should take seriously: the home inspection. What Is an Inspection Contingency? If you’re in the middle of the homebuying process, you may have already heard of the inspection contingency (and if not, you will). But what is it, exactly? A real estate contingency is a clause in your home offer that lets you back out of the contract if something goes wrong or specific requirements aren't met (in other words, the sale is contingent on meeting the terms of the clause). More specifically, a home inspection contingency clause makes the sale dependent on the results of a home inspection. If the inspection reveals a problem with the home (such as plumbing, electrical, or structural problems), you can walk away from the contract, or try to negotiate repairs with the seller. A home inspection contingency is just one of several types of real estate contingencies that can be included in a home offer. The Inspection Process So how does the inspection process work? Don’t fret — we’ll walk you through it. After your house offer is accepted, you are responsible for hiring, booking, and paying for a home inspector to come to the home and look for defects. The timeframe for this inspection will be included in the purchase agreement — usually ten days after the offer is accepted. (If you don’t know where to look for a home inspector, the American Society of Home Inspectors is a great resource to get you started.) You’ll make an appointment with the inspector, with the understanding that the seller will have the house prepared and available for inspection. Now for the not-so-great news. A typical home inspection usually costs somewhere between $300 and $500, and as the buyer, you’ll probably be the one paying for it. There’s a chance the seller might offer a seller-paid home warranty as an extra incentive to buyers — some companies will give a discount on home warranties for sellers, and it can save them money on repairs if some are needed before a sale closes — but don't expect them to offer one. One estimate says only about 25% of existing homes sold last year in the U.S. had home warranties purchased by either the buyer or the seller. During the inspection, the inspector takes photos and makes notes, indicating any areas where repairs are needed (or have recently been made). The inspector will then provide you with a detailed summary of any issues they found. Some also include an estimated cost of any needed repairs — although these are not legally binding (inspectors are not contractors). It's common for inspectors to advise a buyer to consult other professionals, like electricians or plumbers, about specific problems they find. Once the inspector has presented their findings, you have a set number of days (probably laid out in the purchase agreement) to either move forward with the sale, ask the seller for repairs, or back out entirely. You can also ask for more time to further consult with professionals about the repairs, or ask the seller to lower the sale price based on the likely repair costs. This negotiation usually takes place between your agent and the listing agent, not you and the seller directly. The seller may ask for a copy of the inspection report in order to evaluate the time needed for any repairs. They might decide whether to perform the repairs or negotiate some more. If you’re not satisfied with the results of the inspection or the seller's response, you may choose to terminate the contract and receive your earnest money back, so long as the termination takes place within any deadline given in the sales agreement. What's Not Included in a Home Inspection When going through the home buying process, it's also important to know what a home inspection will not cover. A typical home inspection is a visual examination of the property, which means some things often don't get looked at or dealt with during an inspection. Things that generally aren’t included in a home inspection: Any areas that aren't readily accessible (for instance, blocked by snow or vegetation).Any areas that are dangerous to enter, such as areas with exposed wiring.Any systems (such as HVAC units) that aren't working and need to be taken apart to be inspected. Inspectors may also refrain from operating shut-off valves, taking off outlet covers to look at wiring, or doing anything else that might cause further damage. Common Problems Found During Inspections During a typical inspection, the home inspector will look at the following aspects of the home: Electrical, heating and cooling, mechanical, plumbing, roofing, structural, and ventilation problemsThe house's attic, interior, fireplaces, and outbuildingsLead based paints, pests, mold, radon, and proper permits While potential problems could arise in any of these areas, some of the most common problems found during a home inspection include: Faulty wiring, open junction boxes, or poor wiring jobsCracks or leaks in the foundationBent or clogged rain guttersMold, mildew, water stains, or other water damageRoof issues, such as broken flashings or curled shinglesFlaws in the foundation causing sloping floors or sticking doorsFaulty plumbing, such as problems with water pressure or slow drainsVentilation or heating problemsPoor upkeep (such as peeling paint, worn carpets, or minor structural damage). Can You Fail a Home Inspection? Technically speaking, you can't really fail a home inspection, because home inspectors don't deliver a "grade" on an inspection — they simply report on any problems they find. But it's certainly possible for a home inspection to reveal problems that you would consider to be deal breakers. Although most home inspections will reveal some issues (no house is perfect), it's fairly uncommon for an inspection to make a buyer walk away — only about 4% of home contracts fall through because of things like a bad inspection. Should You Waive the Inspection Contingency? So should you waive the home inspection contingency or not? Let’s face it: in a fiercely competitive home market, it can be hard enough to find your dream home, and even harder to win a bidding war. Many buyers are looking for any advantage they can get over other interested buyers. One way buyers can gain an edge is to waive contingencies in the sales agreement to make the entire process faster and less complicated for everyone — and that can potentially include waiving the home inspection contingency. But is it a good idea? The short answer is: almost never. Waiving a home inspection contingency can be very risky. Without a home inspection, serious problems might go undiscovered until after the sale is complete — a crack in the foundation, a deteriorating roof, or the dreaded mold problems. All that could lead to thousands of dollars in repair costs, which will be entirely the buyer's responsibility to bear. In other words, it’s a recipe for regret. Granted, waiving a home inspection contingency can greatly increase the appeal of an offer to the seller, since it reduces their risk and potentially saves them time and money negotiating and paying for repairs. But in turn, you'd be shouldering much more risk. If the buyer has the finances and means to accept that much risk, then waiving the home inspection contingency is certainly an option — but it's generally not recommended. Even if money is tight, you should especially avoid waiving the inspection contingency to save money on the inspection fee — the cost of an inspection is very small compared to the potential financial risk. Ask your real estate agent for their advice on waiving the inspection contingency, and they're likely to tell you the same thing. When to Walk Away Let’s imagine your home inspection has turned up some major problems. When should you walk away and get your deposit back? The short answer is, "it depends." Unfortunately, there's no hard and fast rule for when to make use of that home inspection contingency and back out of a contract. Here are the main factors to consider when deciding whether or not to walk: How badly do you want the home?Is the seller being reasonable about repair negotiations?Can you afford any repairs that you'll be responsible for? During the home-buying process, you should weigh these questions carefully, preferably working with an experienced real estate agent before deciding on the best move. Setting Yourself Up for Success Losing your dream home due to the results of a bad home inspection, or because the seller went with an offer with no such contingency, is not nearly as heartbreaking as learning your dream home is actually a nightmare of a money pit after already moving in. At the same time, you should have realistic expectations about what you can reasonably fix (and whether you can afford it). If you can’t, then be prepared to walk away. And while we don't recommend waiving the inspection contingency, we do recommend writing the most compelling bid possible by making an all-cash offer that does not include a financing or appraisal contingency. Want to learn how a cash offer, with no financing contingencies and no additional costs, can increase your likelihood of making a winning offer by 4X? Apply to get Cash Approved™ today!
Dan S | Apr 22, 2022
7 Types of Real Estate Contingencies and When to Waive Them
When you finally have your dream home in your sights and you (finally!) made the winning offer, the last thing you want is for the deal to fall through. But at the same time, you want to be able to walk away if a huge deal breaker is revealed in the time between your offer being accepted and closing. If the home inspection reveals the house is actually a money pit or the property title is in dispute, for example, of course you want to be able to get out of the contract. This is where contract contingencies come in. What is a contingency clause, why is it important, and when should you think about waiving contingencies when buying a home? Read on to find out about 7 types of real estate contingencies – from common to obscure. What Is a Contingency in Real Estate? A contingency is a condition that must be met before a deal is finalized. In a real estate transaction, contingencies are usually designed to protect the buyer by letting them walk away from the sale if specific conditions are not met. Contingencies can also slow down and complicate the home-buying process. Or terminate the deal entirely. And who wants that? In a sellers' market, anything that slows down the process puts buyers at a disadvantage, especially if they're trying to win a bidding war against other interested buyers who have fewer strings on their offers. That doesn't mean you can or should remove every contingency in your offer. Here are explanations of different types of real estate contingencies and when they are useful (and when you should consider waiving them). 7 Types of Real Estate Contingencies1. Appraisal Contingency What to know: Typically, a mortgage lender will not approve a loan where the loan amount is out of line with the appraised house value.That's because a low appraisal means the property may not provide enough collateral to support the amount of the loan. An appraisal contingency allows the buyer to back out of the contract with no consequences when a home appraisal reveals the value of the home is lower than the offer price. For a seller, a low appraisal coupled with an appraisal contingency means they'll either be forced to renegotiate the sales price or find another buyer who will meet the sale price despite the appraisal value. When to waive: Waiving an appraisal contingency can be the difference between winning and losing in a multi-offer situation. According to the January 2022 RealtorsⓇ Confidence Index Survey, 22% of buyers in the previous three months waived an appraisal contingency. If the buyer has the means to make a cash offer — or can cover the appraisal gap out of pocket — this tells the seller that the buyer can pay the price they bid even if the appraisal comes in lower. Buyers using traditional financing will be limited in their ability to waive this contingency by their lender's rules if they don't have enough additional cash to cover the deficit. Waiving the appraisal contingency can be risky because the gap may be much higher than you expect or are able to budget for. If you make an aggressive bid in order to win, and you waive the appraisal contingency, you may find yourself needing to come up with many tens of thousands of dollars out of pocket – or find yourself in breach of contract. If you make an offer backed by Accept.inc, on the other hand, you buy with the power of cash and waive your appraisal contingency entirely. That's because Accept.inc provides a Value Check on the home before you make your bid. Our process guarantees that you'll know the maximum appraisal gap you might need to cover; your gap will not be more than the difference between your bid amount and the Value Check (assuming your offer is higher than the value check). Why does this matter? It means no surprises. With traditional financing, you won't know until well into the process how much extra cash you need to have lying around to make up the difference between your offer and the appraised value (or your loan amount). With a Value Check in hand, on the other hand, you'll have the confidence to make an offer knowing your maximum appraisal gap amount and how much you can bid. It protects you — and the seller — from appraisal gap uncertainties. 2. Financing Contingency What to know: A financing contingency, sometimes called a mortgage contingency, allows a buyer to pull out of the contract with limited consequences if they're not able to secure the needed mortgage.The simple pre-approval that a typical lender does when you're shopping rates doesn't guarantee that your financing will come through during the final underwriting process. If a buyer chooses to omit the financing clause in their offer but cannot get the funds in time for the closing date, they likely have to forfeit their earnest money deposit. The seller would have to choose between delaying settlement in hopes that giving the buyer additional time will allow them to secure a loan or putting the home back on the market. In Q4 of 2021, nearly 30% of home contracts were delayed or terminated and more than 20% of those delays and terminations were due to financing issues. (Source: January 2022 RealtorsⓇ Confidence Index Survey) When to waive: If you're making an offer that depends on a traditional mortgage, there is a risk that financing will fall through. And you don't want to be on the hook if you waived this contingency. Cash buyers, on the other hand, make offers without a financing contingency; they can show proof they have the liquidity to pay the full offer price with cash in the bank – no strings attached. How do you compete with a cash buyer that's flashing a metaphorical trunk full of cash? By making a good-as-cash offer yourself! When you're Cash Approved by Accept.inc, you get all the benefits of paying a mortgage over time, but you are able to make a full cash offer using Accept.inc's proof of funds. Learn more about the difference between a mere pre-approval and an Accept.inc Cash Approval. 3. Home Inspection Contingency What to know: A home inspection contingency, also known as an inspection rider, allows the buyer a chance to back out of the sale if the home inspection reveals significant problems or issues with the property.This contingency can also allow for negotiating repairs and the associated costs with the seller.It is the buyer's responsibility to arrange for the home inspection within a week or two of the contract being signed. When to waive: In a highly competitive market, a lot of buyers find themselves under pressure to waive the inspection contingency because they know a seller will prefer offers that don't include one. But if you've seen the Tom Hanks and Shelley Long classic "The Money Pit," you might be leery of buying a house without knowing what's wrong with it and how much it would cost to fix. And rightly so! That's why some serious buyers ask for what's called a pre-offer inspection. If they find issues with the home, they would simply choose not to put an offer in. This makes the inspection contingency a moot point. Unfortunately for buyers, a pre-offer inspection is nearly impossible to do in highly competitive seller's markets because it requires the owner to agree to let an inspector into the home prior to going under contract. As you've undoubtedly seen in the frenzy of the market in the last few years, many homes are pending sale mere days after the listing goes live (which often means offers were submitted after the first open house, if not before). Allowing for a full pre-sale inspection isn't attractive to sellers, especially if you consider that they would be required to disclose any major issues that come up in an inspection once they are made aware of it. Doing a pre-sale inspection can be a great strategy for avoiding the inspection contingency, but it is often not a viable option in a seller's market like we are seeing in many metro areas these days. That said, skipping the home inspection entirely, even if you're worried it might be the only way to win your offer, is an exceptionally risky move. 4. Home Sale Contingency What to know: Sometimes a buyer needs to sell their current home before they are able to afford a new home. A "home sale contingency," therefore, stipulates the buyer's current home must be sold before the new sale can proceed.This contingency usually comes with a deadline. If the house is not sold by the end of the contingency period, the contract can be extended, or the seller can back out of the deal.There are two types of home sale contingencies: a sale and settlement contingency, and a settlement contingency.A sale and settlement contingency is used when the buyer is selling their existing home but hasn't yet received an offer or signed a contract. Under this contingency, the seller may use the "kick-out clause." A kick-out clause means the seller may continue to list the home and entertain other offers, potentially "kicking out" the current buyer in favor of another offer.Under a settlement contingency, the buyer's home is already under contract, but they just need to complete closing on their old property. In this case, the "kick-out clause" is not applicable, and the seller cannot continue to market the property as for sale. When to waive: While being able to sell a home before starting payments on a new one is obviously ideal for the buyer, be warned that including a home sale contingency in your offer (also known as making a "contingent offer") is highly unattractive to sellers. If you have no choice but to submit an offer with a home sale contingency, do everything you can to make it significantly more competitive. That may mean offering a higher price or making a cash offer (which eliminates financing and appraisal contingencies), or possibly both. Strategize with your real estate agent about what it will take to be competitive if there's no way around this requirement. The good news: If you're a first-time home buyer, then this contingency isn't relevant. 5. Title Contingency What to know: In real estate, the "title" is the legal right to ownership of the property. The title changes hands every time a property is bought and sold. During the closing process, a title company conducts a title search of public records to ensure that the seller has the rights to sell the property and that there are no other claims to it. In short, the title search makes sure the seller is legally able to sell the property and that no one else can claim it after the sale.A title contingency, therefore, is a clause in the contract that ensures the buyer can back out of the contract if the title search throws ownership of the property into question. When to waive: Lenders will not close a loan if the ownership of the title is in question, so it won't be possible to waive this contingency with traditional financing. Even with a cash offer, it is not advisable to skip the title contingency since no buyer should be willing to purchase a home without a clear title. Note that a title contingency is not the same thing as title insurance (which provides remedies if the initial title search missed something and another party lays claim to the property later down the line). 6. Home Insurance Contingency What to know: A home insurance contingency requires the home buyer to apply for and secure homeowner's insurance before the sale can complete.This contingency may be added by the mortgage lender as one of the terms of the loan -- in other words, they will not issue a mortgage loan until the buyer has homeowner's insurance.A home insurance contingency can also be requested by home buyers. If the home happens to be in a state at high risk for certain hazardous conditions (like hurricanes, fires, earthquakes, etc.) some insurance carriers may flatly refuse to issue homeowner's insurance. This contingency allows the buyer to walk away from the deal and keep their deposit if they're unable to secure an insurance policy. When to waive: Even if you've been doing a ton of research on home buying and real estate contingencies, you may not have heard of this one. This is a pretty typical requirement for home buyers and not something that would be considered a stumbling block. Most mortgage lenders will not issue you a loan in the first place if you don't have homeowner's insurance to protect your investment (and their collateral) and there's no reason to waive this contingency. 7. "Right to Assign" Contingency What to know: This contingency is generally only used by real estate wholesalers and investors. Investors agree to purchase a property, then sell them to another investor at a wholesale price.The "right to assign" contingency allows the investor to back out if they can't find another buyer for the property, for whatever reason. When to waive: As an everyday home buyer this contingency isn't something that would come up in your home-buying journey, even if you're buying another residential property to rent out for income purposes.Key Take-Aways About Real Estate Contingencies As you can see, there are common contingencies you can waive if you're making a cash offer, common contingencies that you may choose to keep to protect yourself, and any number of obscure contingencies you might write into an offer for very specific and niche needs. But the more contingencies an offer carries, the less attractive it is to a seller because these contract riders can slow down and even completely derail the home purchase. That's why removing the financing and appraisal contingencies with an all-cash offer is one home-buying strategy that is sure to give you a competitive edge over other buyers. Learn how getting Cash Approved brings you one step closer to moving into the home of your dreams!
Dan S | Apr 4, 2022
Should You Use an Escalation Clause in Your Denver House Offer?
Imagine it: you find your dream house in Denver. It’s absolutely perfect for your family...and about a dozen other families, too. Let the bidding war begin! Buyers looking to get an edge in the Denver real estate market often add an escalation clause to their offers, stating how much higher they will go in response to competing bids. Should you? Learn how an escalation clause in real estate works and if it’s right for your situation. What is an escalation clause in real estate? An escalation clause in a real estate contract spells out that you’re willing to raise the offer price in response to a higher, competing offer the seller might receive. The clause sets a specific amount above the competing offer that you would be willing to pay, up to a maximum limit. Here’s an example of how it works: you find the perfect home and submit an offer of $300,000. With your offer, you submit an escalation clause, setting the maximum limit of $325,000 for your final offer. The terms of the clause state you will escalate your bid $1,000 over the next highest offer (meaning someone who bids higher than your $300,000 offer), until the maximum escalation limit of $325,000 is reached. So if someone else bids $310,000, your escalation kicks in and transforms your offer into a $311,000 bid, and so on, until you hit $325,000, at which point your escalation stops. The idea is that by using an escalation clause, you might prevent another buyer from outbidding you in a situation where you'd be willing to pay a little more than your initial offer. The escalation clause lets you "escalate" automatically. But, don’t jump the gun on submitting one. According to realtor.com, escalation clauses “should only be used when the buyer is fairly confident that there will be multiple offers, or when the buyer expects to pay an increased price.” Is an escalation clause a good or bad idea? Whether an escalation clause is a good idea or bad idea depends on the market. In Denver, with the combination of low inventory and low interest rates, competition in the real estate market has been more intense than ever. Using an escalation clause might give you an edge; or, it might just be table stakes. On the other hand, an escalation clause would be a bad idea if you can’t cover the difference between your pre-qualified loan amount and the escalation price. Going back to your perfect home scenario: if you qualify for a loan of $300,000 — based on your financials and the assessment of the property’s value — and you choose to bid higher than that, you will be responsible for coming up with the escalation difference out-of-pocket. Also, some sellers choose not to accept offers with an escalation clause because they want you to submit your highest offer up front. How do you write an escalation clause? The best thing to do is talk to your real estate agent about whether escalating would help your offer; and if so, under what terms. According to realtor.com, an escalation clause should focus on the following: What is the original offer of purchase price?How much will that price escalate above any other competitive bid?What is the maximum amount that the purchase price can reach in case of multiple offers? It’s also a good idea to make sure your escalation clause includes language requiring documentation from the seller proving there was a higher offer. Without it, you might end up paying more for no reason. Have you considered making a cash offer? An escalation clause may or may not be the most effective tool for securing your new Denver home, depending on your goals and situation — however, making a cash offer might give you the big advantage you need. Cash sales are on the rise, according to the National Association of Realtors, whose August 2021 survey showed that cash sales accounted for 23% of existing-home sales. In a multi-offer situation, it's not necessarily the highest bid that wins. A real estate cash offer can be more attractive to the seller, giving you more leverage to make a competitive offer, winning at a lower price or getting more concessions. With Accept.inc, you can get Cash Approved™, and gain the power to make real cash offers at no additional cost. Accept.inc offers beat an average of nine offers in multi-offer situations, and data shows that Accept.inc. buyers save on average $13,000 in multi-offer situations, when compared to the highest offer. Learn how to gain the competitive advantage of an all-cash offer with Accept.inc. today!
Stella W | Dec 21, 2021
Home Selling Resources
3 Benefits of Accepting a Cash Offer When Selling Your Home
We get it: selling a home takes the cake as one of the most difficult (and stressful) financial experiences we can face over the course of our lives. From having to navigate challenging contingencies to worrying if your sale will close quickly and seamlessly, the selling process can be pretty overwhelming...to put it lightly. Whether you’re anxious about the possibility of a long, drawn-out process or you’re worried about the costs associated with selling a home, you’re not alone. As you know, when a deal falls through, you have to re-list your home. And when you relist your home, prospective buyers often assume there’s something wrong with the home, which can make it take even longer to get a new offer and, ultimately, cash in your bank account. As a seller, there are three major benefits to accepting a cash offer on your house. There are a number of advantages to accepting a cash offer instead of working with the approximately 86% of buyers who pursue a traditional mortgage. And in a hot real estate market, an all-cash offer doesn’t necessarily mean having to accept an offer below-asking price or dealing solely with institutional buyers. It’s a common assumption that all-cash home purchases are a rarity. However, they account for a pretty healthy portion of property sales – representing 36% of home sales in 2020 alone, according to Realtor.com. From a speedier close to cost savings, here’s a look at the three biggest reasons to consider an all-cash offer on a house. Benefit #1: Cash Offers Close Faster Maybe you’re relocating for an employment opportunity. Or perhaps you’re expanding your family and upgrading to a larger home. Whatever the case may be, by accepting a cash offer on a house, you’ll speed up the process of getting your house sold. Sellers prefer cash offers because selling a home through a traditional mortgage lender is time-consuming, taking an average of 47 days to close (according to Ellie Mae). The culprit? Lenders require a lengthy underwriting process at the end of the sales process. With an all-cash offer, the average time to close is approximately 2 weeks. Between the initial pre-approval and the loan finalization, if a buyer’s financial picture changes, or they fail to satisfy certain requirements, the lender can decide to decline their loan. The result? Your deal will fall through and you’re left back at square one of the selling process.Benefit #2: Cash Offers Eliminate the Risk of Financing Falling Through Month over month, NAR’s Realtors® Confidence Index continues to list “issues related to obtaining financing” as the primary cause of delays or terminations of real estate contracts. From buyer financial troubles to third-party appraisals, several things can cause lender financing to be at risk. If the buyer is unable to secure a traditional mortgage at all — or for the amount they "pre-qualified" for — they won't be able to purchase your home. As a result, you'll either need to pursue the next offer in your pipeline or place the house back on the market. Best case scenario: it's a hot market and the whole process starts all over. Worst case scenario: the market softens and it takes longer AND you need to lower the listing price. But if you're presented with a cash offer, you don't have to anxiously chew down your fingernails, worrying that the deal could collapse at the 11th hour because of financing problems. Benefit #3: You Won’t Lose the Deal Over an Appraisal Contingency Another way a traditional mortgage lender can kill your sale is via an appraisal contingency. An appraisal contingency is a clause that states the contract can be terminated if the seller’s asking price isn’t consistent with the assessed market value of the house. An appraiser’s evaluation combines tax records, prices of comparable homes recently sold in the local area, a personal assessment of the property’s condition, amenities and features, location in the neighborhood and several other considerations. If your home doesn't appraise at the list price or higher, the lender can refuse to approve the buyer’s mortgage loan. Or, the lender may agree to finance the home, but the buyer would be responsible for fronting the difference. Oftentimes, buyers don’t have the financial means or are unwilling to cover the difference. If that's the case, the buyer can rescind their offer. When you receive an Accept.inc offer, however, you'll have confidence the house has already been offer-checked and the sale is approved for the amount of the offer. Enjoy the Benefits of a Cash Offer on Your House From neighborhood parties to engagements to a baby’s first steps, your home is not only a reflection of you, but it’s also where priceless memories are made. What it shouldn’t be: a source of stress and anxiety when it comes to the home selling process. We founded Accept.inc as a way to introduce a better kind of mortgage lending to the market – one that gives everyday homebuyers the power to buy a house with cash. As a seller, this translates into a streamlined process that solves many of the problems associated with the old way of getting mortgages. Helping you sell your home 3x faster than the national average and avoiding deals from crashing and burning is what we’re all about. Because having to relist a home is certainly not our definition of fun, and we’re guessing it’s not something you want to experience either. All you’re responsible for is accepting the strongest all-cash offer in real estate! To learn more about the benefits of partnering with Accept.inc, download our free Seller Information Packet today.
Kelly K. | Jul 27, 2021