Category — Buying

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When buying and selling real property in Utah, the standard form to use is called Real Estate Purchase Contract,  a.k.a.  the REPC (pronounced rep-see).

This is the form that licensed real estate agents must use. Buyers and sellers may use any form they choose, however if there is a real estate agent involved, then this is the form.  This form is approved by the Utah Real Estate Commission and the Office of the Utah Attorney General, effective August 5, 2003. It replaces and supersedes all previously approved versions of this form. There will be a new one in the next year or so. When that happens I will talk about the changes and post a copy of the new one.

It is actually a very good document and covers most circumstances that could arise. It is a very win-win and allows a buyer and seller to enter into an agreement to sell-buy real property and allows the buyer to do their diligence with deadlines. It covers things like inspection, appraisal, loan and remedies for defaults.

Your three main issues are covered:

The inspection clause. You have the right to inspect the property, cancel the contract and get your earnest money back. No questions asked.

The appraisal clause. If the property appraises for less than the agreed purchase price you may cancel the contract and get your earnest money back.

Loan denial. Even though you have been pre-qualified or pre-approved, there is still the outside chance the loan can be denied. If you are denied you can cancel the contract and get your earnest money back.

All of these conditions have deadlines. As long as you complete the condition and make your claim in writing prior to the deadline, you are good to go. Go here to read about deadlines.

Look at a copy of the Real Estate Purchase Contract.

Everything must be in writing no matter how much you know or like someone or how nice they seem to be.

Remember Money Changes Everything

Typically you will have contingencies for an inspection, an appraisal and the completion of the loan. Each of these come with deadlines that are set when you make an offer to purchase the property. The offer is then accepted, countered or rejected by the seller.

It has been argued that a buyer’s agent should try to put the deadlines as far out as they can. Since the buyer’s agent is protecting his client, this makes sense to me. For example: if the inspection deadline is for 28 days past the acceptance of the contract, then you can cancel the contract on the 28th day “Just Because.” However, a listing agent that is protecting his seller will look at that and say, “We will give you the time you need BUT we are not going to give you that much time.” Sometimes when the deadlines favor only the buyer, the seller will consider it a bad offer and may reject it. If another buyer were to come along and make an offer with deadlines acceptable to the seller and the home was sold out from under the first buyer, that agent didn’t really serve the first buyer.

To make a really strong offer you should take the time needed to do your diligence but be aggressive and do it quickly. A seller will notice that you are serious buyer and this can help when negotiating the price. I believe that an inspection deadline should be around seven days and no more then ten. Personally, I like to do the inspection immediately. If the buyer gets the inspection done on the property and decides that they no longer want to purchase the house, that is perfectly fine and is well within their rights to cancel the contract or make an objection. If so, let’s do it quickly and move on. 

Once it is determined that the inspection is okay, then I order the appraisal. I do not like to order the appraisal and make you liable for the payment until we get past the inspection. The appraisal deadline should be about fourteen days, followed by the loan denial which should be about twenty one to twenty eight days, depending on the type of loan and the underwriting time.  

When I help you make an offer the idea is to make an offer with such good terms that we get a better price. As long as I’m watching your dates we are ok.

Summary: 

• Inspect the property.
• Appraise the property.
• Finish the loan (a pre-approved buyer must have the property approved before the loan can be completed).
• Close.

This is a really great question. I think the more you put down, the better.

When you make an offer I assume you want to negotiate the best deal possible.

With that assumption, let’s look at why more earnest money (EM) can help you. Your EM shows how serious you are and shows that you have some money. This, along with good deadlines, can help you get a better price as a buyer. If you are putting down 3% or more for a down payment, there really is no reason for you not to put a large EM.

Your EM goes towards your down payment or towards your closing cost if you are doing 100% financing. Your EM is protected with the basic contingencies of the Standard Board Of Realtors Real Estate Purchase Contract, or REPC (pronounced rep-see).

The basic contingencies are appraisal, inspection and loan. They all have deadlines and you can cancel the contract within those guidelines WITH WRITTEN NOTICE. If the contract is canceled within the parameters of the contract then the EM is returned to the buyer.

Another reason is called liquidated damages.  The default clause of the REPC Paragraph #16:

DEFAULT. If Buyer defaults, Seller may elect either to retain the Earnest Money Deposit as liquidated damages, or to return it and sue Buyer to specifically enforce this Contract or pursue other remedies available at law. If Seller defaults, in addition to return of the Earnest Money Deposit, Buyer may elect either to accept from Seller a sum equal to the Earnest Money Deposit as liquidated damages, or may sue Seller to specifically enforce this Contract or pursue other remedies available at law. If Buyer elects to accept liquidated damages, Seller agrees to pay the liquidated damages to Buyer upon demand. It is agreed that denial of a Loan Application made by the Buyer is not a default and is governed by Section 2.3(b).

So a large EM benefits you as a buyer all the way through. As long as you monitor your dates and everyone in the transaction stays on task and on time, your money is not at risk.

In summary, a larger EM along with good deadlines can help you negotiate a better price and if the seller defaults you awarded a larger damage settlement.

One of the documents used in selling and buying a home is the Seller’s Property Condition Disclosure.

The seller is obligated under law to disclose to buyers defects in the property known to seller that materially and adversely affect the value of the property that cannot be discovered by a reasonable inspection by an ordinary prudent buyer. This disclosure form is designed to assist seller in complying with these disclosure requirements. Sellers, please thoroughly disclose your actual knowledge regarding the condition of the property.

This document is a comprehensive questionnaire that walks through the physical aspects of a home. The seller will complete this document and present to a buyer as part of their disclosures. A non-occupant owner may not be able to disclose such information. For example, a bank that foreclosed has no way of really knowing the condition and issues that can come with a home. Such sellers will have a NON-Disclosure agreement.

• 1. Occupancy. Does the seller currently occupy the property? A non-occupant owner may have less knowledge of the condition.
• 2. Roof. Does it leak? Has it ever leaked? Any other problems?
• 3. Utilities.
• 4. Water. This about water and irrigation rights.
• 5. Sewer/Septic.
• 6. Heating/Cooling.
• 7. Equipment. Air purifier, audio systems, central vacuum, etc.
• 8. Appliances.
• 9. Fireplaces/Stoves.
• 10. Interior Features. Ceiling fans, elevators, dumb waiters, skylights, etc.
• 11. Exterior Features. Lawn sprinklers, heated driveway, gas BBQ, etc.
• 12. Termites/Dry Rot/Pests.
• 13. Additions/Remodels.
• 14. Structural Items & Soils.
• 15. Boundaries and Easements.
• 16. Use of Property. Is the current use a legal use (renting two units but it’s zoned for a single family)?
• 17. Electrical.
• 18. Mold (not shower mold).
• 19. Other Moisture Conditions. Crawl spaces, poor lot drainage, etc.
• 20. Hazardous Conditions. Asbestos, lead, methamphetamine, etc. Any attempts to mitigate such?
• 21. Homeowners Association. If yes, what are the fees?
• 22. Unpaid Assessments. HOAs can assess a fee for upcoming or completed maintenance items.
• 23. Insurance. Have there been damages which prompted an insurance claim?

What is a Home Inspection?

A home inspection is an objective visual examination of the physical structure and systems of the house. It should be performed by a professional home inspector trained in and dedicated to the profession. The purpose of the home inspection is to assist the buyers in making an informed decision concerning the property they plan to purchase. It will bring the buyers’ dreams face to face with the reality that no house is perfect and all homes require regular maintenance. It should also be understood that the inspection is visual (if a problem is hidden in the walls the inspector can’t see it) and it is not technically exhaustive. It is a little like going to your family doctor. If he sees something of concern he is likely to send you to a specialist for further evaluation.

So how do you know what will be checked in a typical home inspection? Many years ago the American Society of Home Inspectors, ASHI, developed the standards for a home inspection. These standards can be viewed at www.ashi.org. Other home inspector organizations have also developed standards but all are very close to the ASHI standards. Briefly, the standards dictate that the inspector inspect the structure, exterior, roofing, plumbing, electrical, heating, air conditioning, interiors, insulation & ventilation and fireplaces & solid fuel burning appliances. The standards require that the inspector report on systems that are not functioning properly, are significantly deficient, unsafe or near the end of their service lives.

Buyers may want to consider additional tests or inspections that are not generally covered in a standard home inspection. Environmental concerns such as radon gas, lead paint, asbestos and mold can be assessed by having samples evaluated by a qualified laboratory or special equipment. Many home inspectors can offer these services but almost always at an additional cost. Other inspections to consider are wood destroying organisms (termites), sprinkler systems, stucco intrusive moisture inspections and energy audits. It is also a good idea to have all the gas/oil burning appliances inspected and adjusted for safe and efficient operation.

The home inspection is a major part of the buyers due diligence to assess the condition of the house. The buyer should select a reputable inspector and expect a professional report to assist them with their decisions concerning the purchase of the house. Many unpleasant surprises can be avoided with a good home inspection.

What is a Home Warranty?

A home warranty is a one year residential service contract that provides repair or replacement coverage for the major operating systems and appliances in a home that fail due to normal wear and tear.

Home Buyers’ Benefits

Move in with assurance knowing your home is covered.

• You are covered for unexpected home repair or replacement costs on many of your home’s major systems and appliances.
• Coverage is regardless of the appliances’ age, make or model.
• If it can’t be fixed, we will replace it.*
• It only takes a phone call and a small service fee to fix the problem.
• Service is available 24 hours a day, 365 days a year.
• You’ll have budget protection knowing you only have to pay a nominal service fee per trade call.

When buying a home as your agent, I ask the seller to give a home warranty. If they are not willing to purchase one for you, I will.

Home warranties are so common that it is one of the blanks to be filled in on the Salt Lake Board Of Realtors Purchase Contract (REPC), section 10.3.

Packages start at $239 for a condo and $275 for basic coverage.

Here’s a copy of a Home Warranty Contract.

	Seller	Buyer
Central Heating System
Water Heater
Interior Plumbing
Interior Electrical
Plumbing Stoppages
Kitchen Refrigerator
Garbage Disposal
Built-in Dishwasher
Built-in Microwave Oven
Oven / Range / Cooktop
Faucets
Trash Compactor
Garage Door Opener
Ductwork

	Seller	Buyer
Pool/ Spa Equipment
Air Conditioning / Evaporative Cooler
Clothes Washer / Dryer
Silver Upgrade (more info)
Well Pump
Central Vacuum System
Built-in Whirlpool Bathtub Equipment
Septic Tank Pumping

* Subject to terms of contract

With all the TV shows that talk about fixing and flipping houses, I am frequently asked about buying fixers. We call them flixers. After a few questions we usually discover that what the buyer wants is something that needs paint and carpet. Well, that is not really a fixer-upper; it just needs paint and carpet.

Money is made on homes that have difficulty selling because of their conditions. This type of home needs capital improvements and sometimes the buyer has difficulty getting a loan. This is where the money is made: if the seller cannot sell it to a homeowner because of its condition and the financing requirements, then only an investor can buy it. This requires capital and know-how.

The other myth has to do with bank foreclosures. Though good deals can be found, the pricing of bank foreclosures is primarily driven by the market. Foreclosures are just starting to appear in the Salt Lake area. Uninformed buyers believe they can make offers of 50-60 cents on the dollar but this is simply not true. Banks will typically get an estimate of value based on a 30 day sale and then adjust the price about 3% every 30 days till it sells. The bank is trying get as much money as possible and will ride it down.

I remember a couple I worked with years ago. Dave and Kelli wanted to buy a house that needed a lot of work. I mean a LOT of work. I told them as their agent I had no problem if they were to buy the house. However I made them get estimates on the work and draw up a plan and a budget of how they were going to do it. They called about 3 days later, said thanks for making them do the exercise and they had decided to not buy it. Instead they opted for a nice, clean little estate sale that was decoratively challenged and in about 5 years their equity increased by about $75,000.