No financing contingency?

Question

I went to make an offer last night, and since I'm wanting to use a 203k loan, I knew it would be a pain in the ***. I asked for a financing contingency as part of my offer, but the real estate agent said they don't do that in North Carolina, they just extend the due diligence period, apparently 30 days is the norm here. You pay a "due diligence fee" for the long DD period, and if you don't have your **** together before it lapses, you're either SOL or you need to pay another fee to extend it.

With all of the troubles I've heard about with people actually getting the money for 203k loans, I'm wondering if I'm going to have issues here. Can anybody shine any light on the contingencies in North Carolina? Was this guy just jerking my chain?

Ben R. · Answer

"We do it different here" is not in the contract therefore it is irrelevant. Put what you want and need in the contract. That is what a contract is for. Otherwise you just need an invoice. We don't pay due diligence money. Just not in my toolbox and never had a contract rejected for it. We will put down a generous earnest money amount, which shows the seller that we actually have some money and are willing to put some skin in the game. I will never offer a non-refundable deposit of any sort. We often struggle with using a buyers agent because of the flow of communication going through four parties instead of three. When you really need to know what the seller is saying it helps to be speaking to the listing agent instead of going through a third party (your buyers agent)...my .02$ I am not a lawyer and this is not legal advice, only opinion. I did stay in a Holiday Inn recently....

Matt Rothwell · Answer

Bryan H., I am pre-approved for the 203k. I have a pretty well-paying full time job, so that helps. I'm actually pre-approved for almost three times the loan amount already. I do not have a buyer's agent though. I've been so frustrated with the three that I've dealt with so far that I'm certain I can do a better job myself. What would a buyer's agent do that I cannot after I've found the house and gotten the MLS sheet from the seller's agent?

Bryan H. · Answer

So I just moved from MI to NC last December and they do it differently down here. There is a Due Diligence period that does include time to obtain funding approvals. The money put down for DD is minimal, usually $100-$200. Looking at my contract the DD period includes loans, inspections, insurance, appraisals, surveys, and negotiating repairs. We did get a 30 day DD period. Then once everyone agrees on everything above, both parties sign the agreement and establish a, Effective Date. This is the date the EMD is due, I put down 1%. Not sure what is normal here, but probably $1-2K. I agree with Phil Z. make sure you have your own buyers agent. Dual agency doesn't work as well as the agents first obligation is to the seller. Their obligation to you is to represent you fairly, but you lose any edge a good buyers agent will give you when negotiating. My advise, be preapproved for your 203k loan. 30 days to get approval should be fine. We closed 30 days after the effective date, which is 60 days (or so) after you submit your offer.

Phil Z. · Answer

If your not sure what your doing, you should have a Buying Agent. You're not saving anything or getting a better deal by using the listing agent.

Dion DePaoli · Answer

I can't speak to whether this is a norm for real in this market but I can say it sounds a bit silly. Even if the norm is not asking for a finance contingency, you know you want one and will feel better in contract with one. To me, it sounds like the agent is trying to get an offer he knows will have a higher chance of being accepted. If this is your agent, I would find a new one. Sounds like they just want an offer with a high chance of acceptance. (so does everyone) Problem is, they are sacrificing your security and protection to accommodate the acceptance. Sort of the opposite of looking after your best interests. Unless there is a contingency in the contract which says, if you need more time to close you can have it and the Seller agrees to extend the closing date, then the 'norm' just went out the window. The Seller, with no contractual obligation to extend, does not have to extend and you risk losing EMD. Clearly the idea stems from failed financing situations. As a Seller, when I have seen finance contingencies I have called on the loan officer to see where they borrower is in the process of the loan and approval. Often times, I asked for any conditional commitment from the lender. That is not the same as a Pre-Approval Letter. That same idea as a buyer could help you. Ask for the contingency and turn in a conditional commitment from your lender with the contract or offer to the Seller. As a seller, I have often asked for either more EMD or the EMD goes non-refundable for extensions. I think there is a maturity level that a Seller must have in regard to the finance process. As a Seller, I say involved with the loan officer. Typically most contracts afford open communication to the Seller for any financing situations. If an extension is needed, I usually tried to assess whether the extension is needed due to the lender moving slow or the borrower not delivering needed documents information to the lender. Not all borrower are the same, not all lenders are the same. Sometimes good borrowers have terrible loan officers or untimely lenders. As well as vice versa. When the stall is on behalf of the buyer, I would be pretty tough with extension terms. If the issue is at the lender, like the lender is just slow, I might not be so tough on the extension. Again, provided I believe the lender will produce the loan. There have been times, where I have told the buyer that they need to find a new lender in order for me to extend. Moral of the story, contract contingencies exist for a reason. They are valuable tools to protect the interests of the parties to the transaction. To unilaterally throw those to the curb, IMO, is a little irresponsible. As a Seller, I want to sell the asset at the price we agree to. Sometimes that means working with the Buyer and his lender to afford enough time to get the loan and hit my sale price. In that sense, it is pretty simple, the Seller either accepts your offer and terms or counters those terms. At the very least, I would have the contingency in my offer and let the Seller respond to them. If the Seller strikes down the contingency, then you can choose to remove it or find a new asset to pursue. Not putting a contingency in the original offer takes any opportunity to see if the Seller is willing to accept and removes it before you ever asked.