Verbal Offer Accepted - Now What?

Question

BiggerPocket Folk - I need your advice.  I am new and my investor friend is out of town for a while.  I put in an offer on a duplex and they accepted the offer.  I have no idea what the next steps are.

The price they agreed on is $30k (they were asking $50k).  I am estimating less than $20k in repairs. One side of the duplex currently has a tenant on a verbal month-to-month agreement paying cash.  I have talked to a bank about financing already.

My questions are:

1.  Do I need to get this offer in writing somehow?  My investor friend is an agent and she is going to do the contract for me.  She is out of town for another week.  This is a for sale by owner property.

2.  Does a home inspection come first before a contractor to estimate repair costs?

3.  Do I need to contact some city home inspector?  The current owner has not had it inspected.

What is my next step?  Thanks for your thoughts.

-Justin

Jenna Stonecipher · Answer

@Justin Aymer The BP fileplace has a one page purchase contract that you could use to get this in writing. It also has a clause in it that would give you an "out" if for some reason you aren't able to lock in the funding: "This offer is contingent on Buyer receiving adequate financing and approval from Buyer’s partner." Keep in mind that many lenders will not finance a mortgage below 50k. Some insurance companies won't insure them either. Crazy, I know.

If I were you, I would hire the home inspector. After the inspection report if you decide to continue with your purchase, get estimates. Some contractors can give you broad estimates based on the language and pictures in the home inspection report. If you get estimates from a general contractor--they will pad it with an additional 10-20% than if you received estimates from individual contractors. Your home inspector can be a wealth of information when it comes to referrals. So can your realtor.

Your home inspector should also be able to site things that aren't up to City Code. I wouldn't call Codes out... They will cite the owner whether you buy the property or not. Also, they can be awful to deal with.

Make sure you download an estoppel agreement for the existing tenant as well.

Best of luck!

Justin Aymer · Answer

Bill Gulley Thanks for your input.  I am "estimating" the repair cost on my limited abilities and this kind of thing.  My bank told me that they will need a bid from a contractor for the construction / repair loan amount. The bank has me pre-approved for this purchase.  I just have to let them know that it is going through.

Dick Green · Answer

From $50 to $30 ...  LOL.  Seems like money might not be their motivation.  I would probably put a contract in place contingent on inspections....then go back and nibble for a lower price.

Robert Williams · Answer

A good home inspector will point out any code violations that he sees during the home inspection so you'll have an expert on your side helping you find those types of issue.  The only caveat is that home inspectors can only report on what they see (and they haven't yet invented X-Ray glasses to let them see inside walls or other closed off areas).

Jenna Stonecipher · Answer

@Robert Williams That's interesting. I have family in Metropolis IL but I think that's of my Lauderdale lineage. The "Stonecipher mythos" says that that 3 brothers split up, one went north, one went south and ours settled in TN. So, perhaps ;)

Justin Aymer · Answer

@Robert Williams - Thanks for the input.  I feel like a verbal agreement is meaningless.  I need to get that contract going.  I am not worried about code issues, but some may come up.  I am an untrained eye.

Justin Aymer · Answer

@Jenna Stonecipher - Thank you for the wonderful advice.  I am going to get the contract from BiggerPockets!  I am going to get the home inspector going now as well.  Side Note - Do you know any "stonecipher" people in IL?  I know some folks in my area with that name.

Robert Williams · Answer

YES, get the offer in writing.  It's meaningless otherwise.  In my market, agents use software programs that let them write offers online and then they can have their clients sign them electronically (using two programs, Zipforms & DocuSign).  Don't know if that's an option with your agent/partner.

If you haven't been planning on this, it would be a good idea to put a home inspection contingency in your offer.  I don't know what city inspection issues you're concerned about, but if you're worried about code violations and/or illegal construction, make sure you get those concerns addressed during your home inspection contingency period.

Bill Gulley · Answer

How do you know what the cost of repairs are if now, you need estimates?

Go to your agent's broker, tell them you need a contract right now with a FSBO and she's out of town, he/she will assist or assign an agent to assist in her absence and to her credit.

Another way is to just get a contract and get it signed, your seller can change their mind any moment, so it must be under contract.

Then go to your bank, they should take it from there. However, such a small price, your loan amount may be below a bank's minimum loan amount, so better call and ensure you can get the money before you contract, and/or make your contract subject to financing with your down payment.

If this is a rental, you might ask the seller to finance this, since the loan amount might be hard to finance conventionally, that means he may need to finance or wait for a cash buyer. If he does agree, contract and then wait for your agent and/or get an attorney. :)

Justin Aymer · Answer

@Joe Gore  - I already have financing in place.  I have not worked with a for sale by owner on real estate.  I am not sure of the process.  The owner verbally accepted my offer over the phone.  Now I don't know what my next step is.  I feel like I need to get some kind of written agreement?

Verbal Offer Accepted - Now What?

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