6 Popular Conditional Clauses That Protect Property Buyers

By on November 2, 2017

Conditional clauses that can e written into contracts are one of the most powerful forms of insurance a property buyer can use to protect himself. Yet it is something that is often overlooked.

When buyers have gone through a marathon of a negotiation and finally agreed on a transaction price, they often fear the request of clauses to be inserted into the agreement could jeopardize the deal one way or another.

This is a key reason why many investors and home buyers don’t insist on them often enough.

But look at it this way.

You are going to pay for the property. And you are taking on a significant amount of risk… especially when due diligence is not thoroughly conducted.

So it makes perfect sense to erect this final line of defense to prevent buying a lemon.

On the other hand, if you happen to get buyers’ remorse after agreeing to a deal, a conditional clause allows you a route to weasel out of it.

Here are some of the most popular and common clauses home buyers and real estate investors often use when purchasing property.

1) Appraisal

The ultimate mood breaker for buyers is to purchase a house at a specific price thinking it was a good deal… and then later find out that it is worth only a fraction of what the agreed price is.

Investors might know something others cannot see. And attribute a high value to the property.

But regular home buyers could often fall into the trap of paying above market price.

To avoid this booby trap, inserting a clause stating that the appraised value should be at the sale price or higher can save you a lot of heartbreak.

2) Attorney approval

The best “get out” clause is the attorney approval clause.

This basically allows you to back out of a deal as long as your attorney disapproves of your purchase.

And since your attorney is obviously working for you, he is going to do as you say.

This tactic in essence, is to only provide a half-agreement when you initially sign a contract to purchase. Because you can ultimately decline the deal when you have a clearer mind the next day.

A seller would be very generous indeed to allow such a term to be inserted into a sale contract.

But sometimes, sellers have bad advisors and are willing to accept such terms as long as you request for it. Sometimes they are simply too desperate to sell and would entertain any type of clauses you want.

The industry standard is usually 10 business days for the attorney to scrutinize a contract. However, it really depends on how you work this term into the agreement.

3) Financing

Another popular clause is the subject to mortgage approval clause.

This is so commonly used by buyers and accepted by sellers that it is almost a given that it is included into every contract.

Not only is this common practice, sellers also understand that there is no point pushing a deal when a buyer don’t have the financial backing required for closing.

Sellers would rather move on and find a new buyer should a seller be unable to finance a purchase.

Saying that, it is also not unheard of that this clause is not included in a purchase agreement.

Unless you already have the funding part settled, it is best to ensure this clause is sitting somewhere in the purchase agreement.

4) Home inspection

This is a very common conditional clause applied by investors and flippers when acquiring new assets.

When profits are a key concern, home inspection can play a critical role in how much exactly can the flipper profit from the property.

Should a qualified and certified home inspector find major faults and defects with a house, it could mean a great sum of expenses required to make the house reasonably habitable.

Regular home buyers however, sometimes don’t pay a lot of attention to the need for home inspection.

They might still want to get a proper inspection done. But the results might not affect their buying decision that much.

The main motivation to get the inspection done is to estimate their budget to get their new house up to scratch.

This means that if you are acquiring a property for investment purposes, it is recommended that you have this clause written somewhere in the contract.

5) Sale of another property

Very often, households trade up their homes for a bigger and better one. And they need the proceeds from the sale of the current home to finance to purchase of the new one.

This also happens occasionally to investors who intends to grab a better rental property and give up the lesser one.

It’s not unreasonable to have a clause where the seller agrees to null the sale agreement if the buyer is unable to sell the current house to fund the purchase.

There’s little else they can do anyway.

How are they going to force through a sale when a buyer don’t have the money to complete the transaction?

6) Title

Title issues can really put a dent to your sanity.

And they arise more frequently that you think.

While title insurance is available just to counteract against future problems with a title, why go through with a purchase when a property don’t already have a clear title?

With a conditional clause indicating the need for a clear title, you can legitimately back out of a deal if the title company finds something fishy about a house and has no reasonable explanation for the mystery.

A clear title should have no liens placed against it. With the seller as the clear owner.

This can potentially save you from a lot of hassle and money. It is a must if you love your hard-earned money.



Related:

You May Also Like...

hair1 eye1 abs1
Access GOV-foreclosure property listings up for auction
Why friends look forward to your FAILURE
Give your resume a professional look for $5
Best EVER excuses for being late to work

Investors and homeowners receive our newsletters. Subscribe to our list.

Get More Real Estate Knowledge & Insights From Our Newsletters

Enter your email below