Moses Kagan on Real Estate

How long should the contingency periods be?

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As we’ve discussed before, when you write an offer on an apartment building in Southern California using the standard purchase agreement, what you’re really doing is handing the owner a proposed purchase contract filled out with the terms upon which you are prepared to buy the property.

Theoretically, the owner could just sign the offer and you’d have a deal. So, you want to make sure that the terms you’re including in your offer are reasonable and achievable.

One of the things brokers get wrong most often when drafting offers is the time frames. That’s because the default option printed on the forms conflicts with the market standard.

Here’s what I like to use for deals where there is a loan:

  • 10 days for the inspection / documentation contingency (the default in the docs is 17 days – too long)
  • 21 days for the loan contingency (the default in the docs is 17 days, which is too short, given that the banks are absolutely slammed right now)
  • 45 days (total) to close

When you’re going all cash:

  • 10 days inspection / documentation
  • 14 days to close

If your broker is writing offers for you with time-frames that are different from the above, he/she is most likely costing you deals (if the inspection period and/or days to close are too long) or putting you in a nasty, exposed position (if the loan contingency period is too short).


Written by mjkagan

09/12/2012 at 4:12 am

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