Advice requested. Earnest money at risk?

Question

Hi everyone, looking into buying a property (as a personal residence), I received this counteroffer around an hour ago. They have requested multiple changes to the original offer that worry me.

1) Termite clearance to be removed

2) Remove contingencies: Inspection-Day 5, Appraisal-Day 12, Loan-Day 12

I’m wondering if either of these are red flags to anybody with experience on the matter.

I’m mainly concerned with the loan contingency removal with the appraisal contingency removal as well. If I put down earnest money, does the removal of the loan contingency mean they can keep my earnest deposit if the loan doesn’t get accepted or if the appraisal falls short? This is in Southern California (expensive as all heck market) and would be a set back that would put me back YEARS. The wording on the document says “NO LOAN CONTINGENCY: Obtaining any loan specified above is NOT a contingency of this Agreement. If Buyer does not obtain the loan and as a result does not purchase the Property, Seller may be entitled to Buyer’s deposit or other legal remedies.”

Does anybody know for sure? The counteroffer expires tomorrow at 5PM PST… Any knowledgeable advice would be very welcome. Thanks to anybody who responds.

Peter Mckernan · Answer

@Zackery Martinez If you remove them by signing the loan, appraisal, inspection contingencies off yes you can risk your whole EMD. I would have your agent pull comps see where the values are and if the appraisal can be justified, if it can then I would remove the appraisal contingency if that is what you need to win out. Only if the comps pencil out.

For the inspection, we have had some deals where buyers put 5 day inspection, that is easy, and I would say yes to this happening because the inspection can be done day one of escrow and all the other stuff as well.

Loan I would not remove that unless you have full UW approval and there are no conditions that need to be satisfied for that home/you prior to removing it.

For this to win out and you not to lose that EMD, just be strong on your stance to not removal those contingencies until those dates and make sure you are working with an agent that is very educated along with the lender so they can make all of those timelines happen without any challenges.

Brad Sneckner · Answer

@Zackery Martinez It also depends on what kind of loan you are using. With an FHA loan, there is a document called the "FHA Amendatory Clause" that is kind of a loophole for the appraisal contingency (doesn't apply to a conventional loan). But beyond that, I wholeheartedly agree with Grant above about checking with your lender. If you've already been fully underwritten, then a 12-day loan contingency period might be workable, and not too much of an issue. I wouldn't waive the loan contingency entirely, but if the lender is able to make it work and get you approval within 12 days, it's an aggressive counter from the seller but not uncommon. Also, depending on how the counter is written (check with your agent on this) the contingency doesn't "automatically" come off. You still have to submit a signed contingency removal form, so even at the 12-days or after, you can just not do it, and won't lose your deposit. You will probably get a Notice to Perform from the seller's agent, and then possibly lose the house/fall out of escrow. But you'd keep your deposit. But again, the wording matters here, so check with your agent.

Good luck man!

Bruce Woodruff · Answer

I wouldn't release any contingencies. I'm not a Realtor but have been through this process a few times. The only time I would do that is if I were willing to take on anything that happened as a result of the releases. But that was only on Cash Deals and I'm a Contractor, so no worries.....

Don't get frantic in this insane market. Wait. There will always be more properties. ALWAYS.

Grant Schroeder · Answer

@Zackery Martinez do not waive appraisal or loan contingencies. Sellers think they have all the power in this market. It is ok for you to push back as sellers are getting greedy, especially in CA. Has your lender fully preapproved or pre-underwritten you? Or are you working with a big bank or CU that simply took your app and "prequalified" you? There is a HUGE difference based on who you work with.

Steve K. · Answer

If you're paying cash, have ample reserves, and plan to remodel the whole property... then sure no problem. If you're operating on a tight budget, and need everything to go perfectly... don't do it.

Zackery Martinez · Answer

@Brad Sneckner

Thank you. I appreciate your advice and knowledge more than you know. I’m actually posting this on behalf of my dad. He talked to his lender and that’s basically what he said to my dad as well. Thank you, again.

Everyone else too!

Wayne Brooks · Answer

@Zackery Martinez It could not possibly be more clear....if you don’t get your loan or close for any reason...you lose your EM.

Alex S. · Answer

I don't know the specifics of the property, but if it is a "fixer upper" then the seller may know that it won't qualify for a bank loan and therefore can't take an offer that requires financing.  If it will qualify for normal financing, then the seller is just wanting a fast clean transaction with all-cash and they must think they have the buyers to make that happen (and maybe they do!)

Short answer: Yes, they could theoretically take your earnest money if you waive the financing contingency and then fail to get financing.

Longer answer:  If you are asking this question on this forum, it tells me you aren't fully understanding the situation and you should definitely NOT waive those contingencies.  In hot/competitive markets, real estate investors have to change their strategy to close deals.  Sometimes that means waiving contingencies and accepting more risk to get a deal done.  I would not recommend accepting that additional risk if you are well versed in the amount of risk you are accepting.  Not worth it.  Time to start searching for something new.

Tushar P. · Answer

This is a sellers market and so the seller wants you to buy a termite infested overpriced house with no inspection and appraisal. You should counteroffer agreeing to everything and adding that there will be no earnest money and the closing date will be 1 year later, with the option to cancel the contract after 6 months. Get the point?

Advice requested. Earnest money at risk?

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