This article is a continuation of our series on Hard Money Lender Advice on How To Manage Your Buyers. As a hard money lender, I’ve seen many properties linger on the market because they were priced unrealistically high. I’ve also seen many contracts that fell though because the buyer could not get the loan.
Suppose you’ve cleared those hurdles. Your property is under contract and you’ve done your due diligence in selecting a buyer that appears to qualify for a mortgage. Now you have one final challenge remaining before you celebrate your success. This challenge is called passing your home inspection.
The majority of the properties on the market – no matter how extensively renovated – are listed as-is. What it means is that the seller makes no representations or warranties regarding of the condition of the property. It’s up to buyers to inspect the property for any potential defects. So if the buyers uncover defects that cannot be mitigated by seller, they are free to terminate the contract and get their deposit back.
As a hard money lender, I want you to be aware of a disturbing trend that I’ve seen with many of our own properties. This trend is for buyers to pick your property apart and use the home inspection to renegotiate the price. You need to be aware – and be weary – of buyers who are fishing for a bargain and not emotionally vested in the transaction. They use the home inspection as a tool to renegotiate the price you’ve already agreed on. They demand more and more, and are ready to walk away from the contract if you don’t agree to meet their demands. As a hard money lender, I have several suggestions on how to handle such situations.
Always Budget For Some Repairs
There is no such thing as an AS-IS sale of the property. No matter how beautiful and extensive your rehab is, it’s a virtual guarantee that your buyer will find something wrong with it. You simply need to anticipate it and budget for some repairs. If you are selling a more expensive property, you can expect a more demanding buyer who’re likely to have a longer list of repairs.
Manage Your Home Inspection Time Frame
As we discussed in the first section of our blog, all buyers fall somewhere on the spectrum. One on side are “grateful buyers” who’re just happy to be able to purchase a property. On the other side are “cocky buyers” who think they’re doing you a favor by buying your rehab. It’s “cocky buyers” who are likely to be overly demanding and picky. Some of this behavior is natural. They have other options and they know it. They also want to make sure they are getting a good deal. However, you need to manage them tightly to ensure they are not taking advantage of you.
The single most important thing you can do is to limit the time frame within which they can inspect the property and submit the list of their demands. As a hard money lender, I recommend this time frame to be within seven days of contract acceptance.
Be Alert and Avoid Signing A Contract With Someone Unreasonable
Life gives us clues. Observe your potential buyer’s behavior and attitude prior to signing a contract. We had one potential buyer who dropped plenty of hints that one of our rehabs was not to his standards. I’d offered to split the costs of home inspection to have the property inspected prior to signing the contract. Of course, he was not interested in that. His goal was to put the property under contract and then hold us hostage to his demands. Trust you gut and pass on this type of buyer.
Work With Experienced Agent Who Is Looking Out for Your Interests
The truth to be told, you are likely to have limited conversations with your potential buyers. They are typically handled by your agent who communicates primarily with your buyer’s realtor and not the buyers themselves. This is why you have to work with someone experienced. Your agent needs to be able to pick up on the nuances and help you navigate the issues.
New Funding Resources is a hard money lender helping real estate investors buy and rehab homes in Maryland, DC and Virginia. Call us today at 240.436.2340 or fill out the application by clicking the button below.