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TYPICAL PURCHASE AGREEMENTS CONTAIN THE FOLLOWING CONTINGENCIES FOR THE BUYER:
- Seller Disclosure Statements. The contract is contingent upon they buyer’s approval of the property disclosure statements as prepared and signed by the seller. There is an automatic 3 day right of rescission when the documents are received.
- Inspection contingency. We have the opportunity to hire the most qualified inspection companies to determine the condition of the property. This includes, termite inspections, general home inspections, chimney inspections, pool/spa inspections, roof inspections, and others as needed. Once we have had the property inspected and have reviewed the inspection reports, we may develop a Buyer Request for Repairs. Please know that this is depending on whether the offer was written for an “As Is” purchase – repairs are generally negotiable, and once we reach agreement on any requested repairs, the inspection contingency is removed.
- Geologic & Environmental and California Tax Reports. These reports, prepared by an independent Geologist, show whether the property is located in Earthquake, Fire, Flood zones. It will also show you the current property tax assessment rate for this property, along with any additional assessments that are paid as part of the property taxes. These documents are generally due to be removed as a contingency when your inspection contingency removal is due, so make sure you review them carefully.
- Appraisal contingency. The contract may be contingent upon the property appraising at the sales price. If the appraisal falls short of the sales price, you are not obligated to proceed with the purchase. It is vital that the lender order the appraisal as soon as possible after there is a fully executed purchase contract in order to meet the contingency removal date.
- Loan contingency. The contract is likely contingent upon the buyer’s ability to obtain a loan under the terms indicated in the purchase agreement. Once the loan is approved, you need to confirm with the lender that you can with confidence remove your loan contingency, and that there are no outstanding conditions of the approval that could prevent you from closing escrow.
- Preliminary Title Report. The contract is also contingent upon your review and approval of the Preliminary Title report as provided by the Title Company. This report shows all public records that are recorded against the property, including easements, common maintenance agreements, liens, etc. If there are CC & R’s on the property (recorded Conditions, Covenants, and Restrictions) you have the right to review them to see if there are any restrictions that you object to.
- HOA Documents (if applicable). If the property has a Homeowner’s Association, then the purchase is contingent upon your review and acceptance of the Homeowner’s Association documents. These documents will typically include the Budget, By Laws, Articles of Incorporation, Financials, and Minutes from past meetings. The minutes are usually the most important of these items, as they are a record of issues that have been raised at the Homeowner Association meetings.
Once all contingencies are removed, you are in effect saying you accept the property in its current condition (subject to any agreed repairs by the seller) and are going to close escrow. At that point, your deposit is at risk, so any failure to close escrow on your part might lead to loss of partial or all of your deposit
Once an offer is accepted and the transaction is in the “contingency” phase – one of the buyer’s objectives is to ensure their understanding of the condition of the property they are about to acquire. Inspections are a critical in this “due diligence” period.
While many different inspections can be performed for a residential home, the most common inspections are:
- Home or Property
- Pest or Termite
The following is some general information regarding common issues that may arise during these inspections. Note that you are free to hire any inspection company with whom you feel comfortable. We can refer inspection companies who have served us and our clients for years, if you desire. In any case, we highly recommended that you attend the inspections in person. This is a great opportunity to you to learn about the house through the eyes of the inspector, and to ask questions about any of the findings and recommendations.
Home Inspections (Property Inspections) are a general inspection covering the various systems of the home. They will typically inspect the structural components of the home (foundation, crawl space, attic, exterior, doors and windows, etc.), the electrical, plumbing, appliances, heating & air conditioning, smoke detectors, garage door, drainage, and water heater. They will look for conditions that are not compliant. They will typically comment on maintenance that you may expect over time. Home inspections usually do not include a comprehensive inspection of the chimney and the roof. They also not include building permits.
- Drainage is one area that is often a concern in this area, especially with older homes. Especially the homes that are located in the hills, with homes below. If you buy an older home, you should pay particular attention to the drainage, and what improvements you might want to consider over time.
- Cracking and settlement could be another area of concern. Some cracking in the sheet rock and concrete surfaces is to be expected as the property settles. Extensive cracking, sticking doors and windows, and floors that are out of level can be a symptom of more serious situation and/or foundation issues, proper review should be taken to understand and address these issues.
You should also determine the age of the major components of the home, such as water heaters, the furnace, and air conditioning units. Pay close attention to the age, and ask the home inspector what is a reasonable expectation for the remaining life of these components.
Pest Control Inspectors are licensed with the State Structural Pest Control Board, a regulatory body that regulates termite companies. In a Structural Pest Inspection (Termite Inspection), the Pest Inspector is looking for active infestations and damage from wood destroying organisms. This includes termites, beetles, fungus, and dry rot. There are two types of termites active in our area.
- Drywood Termites swarm above ground, and randomly infect houses. The most common way to treat these termites is to tent and fumigate the structure
- Subterranean Termites are more common. These termites actually live in the soil, and migrate to the structure by building earth tubes. These are typically treated by chemically treating the soil in and around the infected area.
Any active infestation or damage from either type of termites will be categorized on the Report as SECTION 1. Additionally, the inspector will be looking for conditions likely to lead to infestation or damage, but where there is currently no evidence of any damage. These are SECTION 2 items, and are usually the responsibility of the buyer. An example would be a poorly caulked seam in the ceramic tile adjacent to a bathtub, or a wood support post in direct contact with soil. While there may be no damage now, these conditions will likely lead to damage or infestation over time if left untreated.
Also, there is an additional classification known as FURTHER INSPECTION. This would be a situation where there is no visible damage (otherwise it would be Section 1) but there is a strong possibility in the opinion of the inspector that there is damage that is not visible as a result of the condition. Typical examples of this would be loose tiles in the shower or loose linoleum on a bathroom floor. It is your right to have these areas inspected, and you would be generally encouraged to do this. It will always involve some disturbance to the materials involved (peeling back a corner of the linoleum, or removing a tile in the shower). Generally, if damage is found, the seller is responsible for the repair and the replacement of the material. If no damage is found, the buyer is responsible to restore the materials to their pre-inspection condition.
Unless the roof is brand new – a roof inspection by a licensed roofer is higher recommended for most transactions. They will usually issue a report detailing the condition of the roof, and any repairs that are recommended to keep the roof in good condition. It is important to ask the inspector how much life is left on the roof.
In general, wood shake roofs can normally be expected to last 20 to 25 years with periodic routine maintenance. Composition shingle roofs can be expected to last 20 to 30 years depending on the materials used. Coated metal roofs, tile roofs, and slate roofs can be expected to last well over 40 or 50 years. Once the recommended repairs are completed, the roofer will guarantee the roof against leaks for a period of one year.
Depending on the situation, other inspections may be appropriate. Usually we start with the property, pest, roof and chimney inspections. Depending on the results of these inspections additional investigation or a more detailed inspection by a specialist may be warranted. Some other inspections might include:
- Mold Inspection
- Furnace inspections by your electric utility provider
- Foundation inspections
- Drainage inspections