Inspection addenda
The easiest way is to just not include an inspection contingency.
Alternatively, you can sign form 35W or do a pre-inspection and sign form 35P (and 35W).
[UPDATE NUMBERS BEFORE PUBLISHING]
From analyzing 13,000 flips in greater Seattle-area since 2002, we find that on average, MLS-purchased flips sell for 1.8x their purchase price compared with 1.6x off-market and 1.4x at foreclosure auctions.
While we do not know the condition of these flips, we think if anything MLS-purchased flips are in better condition, not worse. Furthermore, off-market deals often have an assignment fee and foreclosure deals have a commission paid on top of the purchase price, which makes MLS deals even more favorable than the numbers suggest.
Our guts tell us that this feels off, and to some extent this is true. The opportunity for luck is greater in these markets, and the top 10% of off-market flips perform better than the top 10% of MLS-purchased flips. Nevertheless, the MLS still presents a meaningful buying advantage for rehab investors.
This suggest there is more supply (deals) relative to demand (competing buyers) when shopping for deals on the MLS versus off market or at foreclosure auction.
From a supply perspective, 4_% of historical flips were purchased from the MLS versus 3_% off-market and 2_% at a foreclosure auction. With more supply, the MLS can absorb more demand.
From a demand perspective, we can say there's roughly 87% of the relative demand off-market as measured by the resale multiples (1.4 / 1.6). Because there are 1.25x more deals on the MLS than off-market (4_% / 3_%), we can deduce there is about 1.09x more demand (87% * 1.25).
In other words, there is 1.09x more demand on the MLS, but 1.25x more supply to absorb it.
We can't say for sure, but we have some theories as to why there is less competition on the MLS than it might appear.
For starters, prospective homeowners cannot easily finance properties that need repairs, and when they do compete it is normally for cosmetic flip opportunities. Many sellers also over price their listings and end up accepting a lowball offer—think of it as a hidden supply on the MLS.
The demand for off-market deals is also is also higher than it appear. From intuition and the advice of others, investors gravitate to the idea that buying off-market or at the auction is less-competitive. The problem is that everyone thinks this way.
In many cases, investors are purchasing overlapping mailing listings and calling on the same FSBO directories.
This is not to say you should only pursue MLS-listed opportunities. Rather, we believe the MLS should be an active source of opportunities for serious investors. From analyzing 13,000 flips in greater Seattle-area since 2002, we find that on average, MLS-purchased flips sell for 1.8x their purchase price compared with 1.6x off-market and 1.4x at foreclosure auctions.
Send form 35R and select the option the buyer wants:
(i) continue with the sale as is,
(ii) cancel the sale and get earnest money back,
(iii) notice for additional inspection, per the inspector's recommendation, or
(iv) ask for stuff: repairs and/or ask a price reduction.
Ask the Facebook group for recommendations! Or search and read reviews. If you like the guy in the video, he is for hire as well.
You open the door and sit around for about 3-5 hours.
If you are amazing, we want to know. Here is a list of current openings, and we are always open to unsolicited pitches.
Inspection Addendum (Form 35) - Use this form to make the offer contingent on the buyer's subjective approval.
Inspection Response (Form 35R) - Use this form to ask for repairs or a price change after conducting an inspection.
Pre-Inspection Agreement (Form 35P) - Use this form for consent to conduct an inspection prior to writing an offer.
Inspection Waiver Addendum (Form 35W) - Use this form to waive inspection, either with a 35P or by itself.
Use this form to make the offer contingent on the buyer's subjective inspection.
If you leave this blank, the default time is 10 days for Buyer to follow up with the inspection response.
Input a different number to change the length of the inspection period. The less time it is, the stronger the offer.
Section 5 states that if an inspector recommends additional inspections (e.g. a specialist is needed), the buyer gets additional time to conduct those inspections.
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Use this form within the timeline defined in the inspection addendum (form 35).
There are four checkboxes buyer can pick between
(i) continue with the sale as is,
(ii) cancel the sale and get earnest money back,
(iii) notice for additional inspection
(iv) ask for stuff: repairs and/or ask a price reduction.
Tip:
If a repair is not needed (e.g. the buyer can still get a loan), a price reduction saves everyone time.
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If you are not doing an inspection contingency, you have a few options:
(i) don't include an inspection contingency
(ii) explicitly waive the inspection
(iii) do a pre-inspection, then waive it
Note: in either case, once the transaction is pending your buyer will NOT have the right to inspect the property or conduct informal showings.
If a buyer wishes to conduct an inspection before making an offer, they need the seller's authorization via the Pre-Inspection Agreement (Form 35P).
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The Inspection Waiver Addendum (form 35W) is used either after doing a 35P or by itself without a pre-inspection.
Check off the first box and the second if there was a pre-inspection.
The third section gives you the option to request repairs.
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