Buying a Short Term Rental in Gulf Shores: The Step-by-Step Contract to Closing Guide

Avery Carl [00:00:02]:
Hey guys, welcome to our 10 episode deep dive of the Gulf Shores, Alabama market. I’m your host, Avery Carle and I wanted to let you know really quick before we get started that we do have some supplemental materials for you to go along with this podcast on our website, the shorttermshop.com. so what we have there is the current purchase prices in this market. So you can set yourself up a search, look at properties, do all that fun real estate stuff like kind of like Zillow. We’ve got it on our website and you can check out exactly how much it costs to buy a condo or single family home or townhouse in the Gulf Shores market right now. Also to go along with that, we have the air DNA data thanks to our friends over at airdna for this market for the past few years. So you can compare purchase prices versus the air DNA data and kind of do some analysis there. We’ve also got a really cool calculator on the website that I built around short term rental investing to go along with all these things.

Avery Carl [00:00:53]:
Or if you know you want to buy in Gulf Shores and you’re ready to start talking to an agent, you can reach out to us at agents the shorttermshop.com and we’ll get you connected with our agent in Gulf Shores. And last but not least, if you just really like us and you want to hang out with us more, we’d love to see more of you. So there’s a few ways you can do that. You can join our Facebook group. It’s called Short Term Rental, Long Term wealth, same title as my book. It’s a community of over 60,000 investors sharing best practices and just kind of being friends with each other. It’s pretty cool. Or if you want to talk to us in person, you can do that every Thursday.

Avery Carl [00:01:28]:
You can sign up@strquestions.com we have a one hour lunch hour hour just office hours where you can ask us anything you want about short term rental investing. So we appreciate you guys listening and please reach out to us with any questions. Follow us on Instagram TikTok Facebook. Join us in our community on Facebook as well and I guess we’ll get to the episode now. Thanks guys. Hey guys. Welcome back to another episode of the short term show Gulf Shores Limited podcast series. Today we have the usual cast of characters, Jonathan, Ethan and Tim.

Avery Carl [00:02:07]:
Today we’re going to talk about the contract process. So we’re going to walk you through the process from offer to close on buying a property in this market, the things you’re going to see about the contract. We’re of course not attorneys. We’re just going to walk you through the way that the process works. We’re not interpreting contracts here. So the first thing you do when you’re going to write a contract, so you’ve got a house that you want to offer on and you say to Jonathan, hey, I think I want to offer on this house. So there’s a few things you’re going to need to be familiar with, things you’re going to need to know what they are so you can understand the contract. So let’s talk about the offer terms for a minute.

Avery Carl [00:02:48]:
So let’s talk about Jonathan, typically, what are you. I don’t really want to talk about prices here because it’s going to be subjective in terms of, you know, when, when in the market cycle somebody’s actually listening to this podcast. But so some of the things that are on the offer ca financing. Let’s just kind of walk through the different, different lines that you can fill in.

Jonathan Lazzarino [00:03:10]:
Absolutely. Good morning everybody. So the, so as far as the offer, the first thing we’re going to talk about is the terms of the offer. So if you’re using financing, which most, most people are using, but of course you can use cash, you know, even seller financing, there’s all those options. But the first thing we do is talk about the terms of the financing. And this then puts our financing contingency in place. So we need to know how much the down payment is going be close to what the interest rate is going to be as well. And that will protect you in case the interest rate skyrockets and you can’t get financing within those terms, then that financing contingency will be in place.

Jonathan Lazzarino [00:03:49]:
That’s why it’s important to have that. Because if you have a 12% interest rate on your financing contingency and you’re not willing to pay that rate, then it’s not going to really protect you too much because you’re supposed to be able to obtain financing within those terms.

Avery Carl [00:04:02]:
So the Alabama contracts and we’ll get deeper dive into this later in the episode. The Alabama contracts do have it where you can write in that you are your financing contingency depends on you getting a rate between or under a certain percentage. Right. Under a certain rate.

Jonathan Lazzarino [00:04:18]:
That’s. That’s right. And that’s why you wanted to line up. If your pre approval does have that, a lot of listing agents will look at it. So you don’t want to put, try to be cheeky and put Something really low to get out of it. Most agents will catch that. But it is there to protect you in case the rate shoots up while you’re, you know, negotiating the offer and after you’re under contract.

Avery Carl [00:04:36]:
Yeah, guys, so right out of the gate, that’s something that is different in Alabama than in other states. Not all state, at least none of the states that I’m licensed in. And I don’t think any of the other short term shop states. But don’t quote me on that. This is one of very few, if not the only one where you can write in a limit on the rate on your interest rate that you can get. So really important to remember that it can keep you safe in terms of interest rates going up during your contract period. Especially if it’s like a brand new pre construction or something that’s not finished yet. It might take a few months to finish.

Avery Carl [00:05:12]:
That’s definitely something to remember.

Jonathan Lazzarino [00:05:14]:
So you’ve got on that note, Avery, sorry to interrupt, but I will say this is for a standard Baldwin county contract. We will have to talk about if it’s new construction. A lot of times the builders will provide a contract and that can be variable. So you may not have all the same protections. Usually you don’t have all the same protections as you do with a resale using a Baldwin county contract if you’re using new construction here. Just wanted to make that side note too.

Avery Carl [00:05:38]:
Well, yeah, so let’s talk about that for a minute before we dive into the the standard contract because that’s more what we’re going to talk about today is the standard contract. But in any case, in any state, a lot of times when builders are doing a pre construction, they will have their attorneys write up their own contract. That really protects the builder more than it protects the buyer. So you guys need to be aware of that when you’re writing offers on things. Just ask your agent because you know, you might have never seen a real estate contract before or an Alabama one, or know the differences. So if you’re buying preconstruction construction, always ask your agent, hey, do they have us using the standard state offer forms or do they have us using a builder specific form? They’re almost always going to have builder specific. You do want to have an attorney take a look at that just to make sure there’s nothing crazy in there. And then you have to decide if it’s something that you’re okay with.

Avery Carl [00:06:30]:
I’ve never seen a builder change terms on a contract because a buyer said, hey, I don’t Feel protected enough, most of the time they’re just going to wait for another buyer. You could always ask. I’m not saying don’t ask, but don’t expect it. So it’s really more of a situation where you need to have an attorney look at the contract, see what, what everything is and the way things are going and what’s doing, and then decide if you’re comfortable or not. Because again, I’ve never seen a builder change the contract that they had specifically written for this development to suit a buyer. They may again, but just understand, don’t expect it. Really good call out, man. Like some great nuggets right out of the gate already.

Avery Carl [00:07:09]:
All right, so back to the standard contract. So we’re writing an offer. Let’s talk about earnest money. So that’s one of the first things that will happen in, in the deal. So what is the standard, if there is a standard amount of earnest money that you see being accepted in the Gulf Shores market.

Jonathan Lazzarino [00:07:26]:
So for earnest money here, I typically recommend between, you know, somewhere around 1%. It’s not, you know, some people try to come in lower and that’s, you know, solid negotiat appreciation, but normally around 1%. So if you’re, you know, if you’re around 550K, you may just offer 5,000 somewhere close to that. It doesn’t have to be exactly 1%, but most people expect it to be close to that amount of the offer price.

Avery Carl [00:07:49]:
Okay, yeah, that’s, that’s pretty standard. And is the earnest money in Alabama, is it fully refundable if you terminate under one of the contingencies?

Jonathan Lazzarino [00:07:59]:
Well, so you do have many contingencies. So the main one is the inspection contingency and the due diligence period. That’s going to be 10 business days, not calendar days. So you’re looking at roughly 14 calendar days unless you have a holiday that extends, which is really nice that it works on business days because if you have holidays, you don’t have to worry about it too much. But, but that is the big contingency and you have to get an inspection. So if you write an offer with me, you really want to be willing to get an inspection done or you are putting your earnest money at risk during that 10 business days is when you have your inspections done. Also, all the other contingencies lapse before this contingency is done, like the Internet. And a few contingencies are really don’t come into play here often.

Jonathan Lazzarino [00:08:45]:
But the main one is the, the inspection and due diligence. Contingency period which lasts 10 business days. And you can get your earnest money back if you terminate. Do an inspection due to an inspection item and there’s, you know, you’re. Many times you’re going to find inspection items that you can terminate with. I’m not going to say every time, but many times you will.

Avery Carl [00:09:04]:
All right, so that’s the main thing that I wanted to, to talk about because there are some states, like North Carolina, for example, which we released our North Carolina episodes before this one, where you’ve got two separate payments, earnest money deposit. There’s earnest money and due diligence deposit, two separate things. One of them is not refundable for any reason, but the earnest money is refundable if you terminate under the contingency. So earnest money is refundable if you terminate under inspection or financing in Alabama. So that’s pretty cool. Usually about how many days does a buyer have to get their earnest money into the title company?

Jonathan Lazzarino [00:09:40]:
It’s three, three business days. Now, all these terms are negotiable on the contract. This is just how it’s standard on the contract. Three business days for the earnest money is how long you have to get it to title and you can wire it in. And there’s many different ways to do that. And there’s many other contingencies as well, but these are the main ones. Another really important contingency is the, especially dealing with condos is the contingency to get all the HO documents to the buyer. Now that when they have five business days to get those documents to you, and then you have five business days to review those after you receive them.

Jonathan Lazzarino [00:10:15]:
And that is one of the most important contingencies along with the inspection contingency and financing, of course. But this is where you look through the meeting minutes. You look through, you know, everything you need to, to make sure to verify that the HOA is in good, good standing and that you’re comfortable moving forward, which is just as important as a property itself, especially with condos.

Avery Carl [00:10:34]:
Yeah, really, really important because that’s where you’re going to find things like upcoming assessments so that you need to make sure the seller is paying those. So is there a spot, speaking of assessments in the Alabama contract where condo assessments are addressed in terms of the seller paying or the buyer paying them?

Jonathan Lazzarino [00:10:51]:
Yes. Now this is an area that you know, so there are parts of the contract where you can check if it’s. If the assessment is due prior, prior to the contract date or due prior to the close date. So if there’s an assessment that’s due prior to closing, you can check that the seller has to pay it. That’s the standard on the contract. If it’s due after the close date, you just have to be aware because even if the assessment has been approved, but it’s not due until after the close date, then it could fall onto the buyer. So it’s something that you have to pay attention to. The due date of the assessment.

Avery Carl [00:11:27]:
Yeah, really, really important. All right, so anything else in terms of condos and assessments that we need to talk about? That’s that there’s a space to fill in on the, on the contract. Anything else there? I think that that due diligence period kind of covers it.

Jonathan Lazzarino [00:11:42]:
All right. As long as you’re doing your due diligence within your time frames, you’re going to be. That’s all you, you know, really have to do is make sure you get your inspections done and negotiated, which you don’t want to really negotiate your inspections until you’ve done all your other due diligence just in case, just in my opinion. But the, once you do that, look through the HOA docs, talk to HOA board members, then you’ve pretty much covered your due diligence, which that varies based on condos and houses too.

Avery Carl [00:12:07]:
Awesome. So, all right, so we’ve made our, we’re writing our offer. We, we’re talking about our earnest money. So let’s talk about what typically I would say 85% of offers are going to be financed. What makes an offer more attractive or less attractive to a seller?

Jonathan Lazzarino [00:12:24]:
Well, so it’s really the terms of the, you know, if it’s financing cash that, that does make a difference. But it’s more what I look for when I’m listing a property are the contingencies along with the offer amount. So if somebody’s offering, you know, a shorter contingency period, you can get through that quicker. If somebody’s offering, you can offer part of your earnest money to be non refundable to show how serious you are if you’re in a multiple offer situation. So it’s really, you look at the terms of the offer which are the, how much the, the seller’s net, the net to seller is going to be which it doesn’t matter if it’s closing cost or purchase price, as long as it looks like it’s going to praise, that part doesn’t matter too much. But really it’s just the terms as far as the shortening contingencies or removing contingencies which I don’t like to do. But you can shorten them and still get done in time. Or, you know, that’s, that’s a way to make it more appealing without having to lower the.

Jonathan Lazzarino [00:13:22]:
Or to up to offer price.

Avery Carl [00:13:23]:
Yeah. And removing contingencies is something that is done more often in a really, really competitive seller’s market, like what we saw in 2021 and beginning of 2022. So there were just so many people offering on every single property that a lot of times sellers wanted to see contingencies removed. They wanted to see no inspection, no financing contingency, which I would never recommend doing unless you familiar with the market, you’re really familiar with the area that the property’s in and just real estate in general and the things that can jump up and bite you in terms of maintenance. I still don’t recommend it at all. But if you ever find yourself in the situation where that is something that might have to be done, please don’t do it on your first property in the, in the market that you’re buying in. And I want to talk about too, there’s a difference between offering as is and offering with no inspection contingency. So some people don’t realize that those are two different things.

Avery Carl [00:14:24]:
Jonathan, do you want, you want to tell us the difference between those two things?

Jonathan Lazzarino [00:14:27]:
Right. So I read every contract is an as is contract. And then you’re. If you have an inspection contingency, that’s just part of your contingency period. But if you write it without the contingency, you don’t, because you’re buying every property. You’re not. If you have something to negotiate on the front end, like an inspection item, that’s what you’re writing into the offer. If you don’t add that on the front end, then it is as is.

Jonathan Lazzarino [00:14:49]:
But you have contingencies which are then a negotiation. If that pops up, if you remove the contingencies, then you’re, you’re, you know, you are still writing it as is, but with no contingencies. So then you don’t have the ability to get your earnest money back if you find something that you aren’t comfortable with. You, you know, you’re putting your earnest money at risk is what you’re doing. So you can still back out of the contract, but you are going to be in breach of contract and then have to forfeit your earnest money if you pull out with no contingencies.

Avery Carl [00:15:17]:
Yeah. So as is just means you’re telling the seller up front, hey, we are going to do our inspection if there’s anything crazy, we still have our contingency in place. We can pull out if we need to. But we’re telling you up front, the number that we’re offering now is the number that we’re going to come out on the other side of inspections with. We’re not going to bang you up, ask for a bunch of discounts, all that. So you know that if you’re looking at multiple offers and somebody else doesn’t isn’t offering as is that they have the opportunity to try and bang you up for some more money, whereas we’re not going to do that. So again, not really something that’s done unless it’s a very competitive property where there’s a lot of offers. But something to consider that there is something in between a full inspection contingency and a, and not having a contingency at all to protect you.

Avery Carl [00:16:04]:
So definitely something to think about. Is there anything in terms of inspections that comes up on pretty like pretty much everything. Like what’s really common that we see to show up on inspection reports around here.

Jonathan Lazzarino [00:16:18]:
GFCI size, if it’s built so the codes change. So you’re gonna see that on almost every inspection. You know, unless it was brand, it’s brand new, then you’re not likely to see it. But and speaking of that, I still recommend inspections on new construction. But anyway, the GFCIs are something that’s always going to show up, you’re going to see. But the things you really want to look out for, any water related damage, that’s really the big thing in this market. So you know, if you have an inspector, if they have a thermal device, you know, a lot of them have thermal scanners where they can see if there’s any active leaks, which that can even be hard to do if it’s been a drought and there hasn’t been a lot of rain there, you know, that may be more difficult to detect. But you can still see signs of staining on the ceilings usually.

Jonathan Lazzarino [00:17:03]:
And they will look for that for the most time. And these inspectors are fallible. They’re not completely perfect. But you know, so it’s. I do recommend walking through yourself if you can, but that’s the big thing that I look for is, and I think everybody should look for is water.

Avery Carl [00:17:18]:
Related damage in this market and corrosion on exterior metal things.

Jonathan Lazzarino [00:17:24]:
That’s right. Wood and metal, they don’t hold up too well in this environment. So you just want to make sure if the decks, how the decks look and if they’re intact. And the pilings, even if they’ve been maintained, if it’s something from the 80s, I’ve seen properties that have had pilings, the wooden posts that the, you know, for the foundation of the house that have been in pristine condition even from the 80s because they were painted and maintained. And I’ve seen others where you would have had to put in, you know, spend a lot of money putting in all new pilings. And from the. Literally on the same street, probably built by the same builder. So it does matter how it’s maintained.

Avery Carl [00:18:00]:
Yeah, absolutely. What’s the typical. So you said the typical inspection timeline is about 10 days, 10 business days.

Jonathan Lazzarino [00:18:08]:
Right. So you. It’s roughly 14 calendar days just built into the contract.

Avery Carl [00:18:12]:
Okay. And is this more of a. More. And this is very, very subjective. I probably shouldn’t even ask it, but I’m going to. How common is it? Or let me think of the best way to word this. So in some markets you can use basically anything on the inspection report to say, hey, I need to terminate this thing. There’s just too many things on the inspection report that I don’t want to deal with.

Avery Carl [00:18:36]:
And then that’s, you know, that falls under the contingency. And other markets, they want to see exactly what. And then the seller has to say, okay, I’m not willing to give you this, so fine, you can terminate. Is this an area where you have to be super specific like that, or does it kind of vary depending on what listing agent or seller you’re dealing with? Or like, if you say there’s too much on the inspection, then you’re out and that’s the end of it.

Jonathan Lazzarino [00:18:59]:
So the way the inspection contingency reads is it is an inspection and due diligence contingency, period. But most, most agents here do read it as an inspection contingency. But it is hard to argue to anything to not get out of if you get an inspection. So as of right now, I’ve never had any trouble to getting out due to an inspection. And of course my clients are my fiduciary, so I’ll talk to them about whatever concerns they’re having. But that’s why we don’t want to submit the inspection report until you’re sure about everything else, because you can get out due to most items on the inspection report. You do want to send the inspection report over. They are going to ask for that.

Jonathan Lazzarino [00:19:39]:
But I’ve never had too too bad a pushback and never gone too far.

Avery Carl [00:19:45]:
With fighting that you bring up a really Good point. Because I’ve seen buyers sometimes say, well, let’s go ahead and send them these five or six things that we don’t like while we’re waiting on this other thing to be inspected. You know, maybe they’re getting an extra inspection. You really need to wait until the end and send it all at once because you, if you’re still waiting on extra inspections, whether that’s like, I don’t know, an extra roof guy or something, and you send them a few things and then you come back with more later and you need to change things, it really just kind of kills your negotiation power. So you really want to wait until all the inspections are done, even if you already have the answers on some things that you want to send over to them and send it all at once.

Jonathan Lazzarino [00:20:24]:
I agree completely. There’s, like you said, it’ll kill your negotiations if you try to send more than one, ask for repairs or credits. And then in addition, if you send it too early, then you can essentially be out of the inspection contingency if they agree to it. And then you’re, you know, if you do find something else that you were waiting on, it may be, it may be tougher to get out at that point.

Avery Carl [00:20:45]:
Another question on the timeline. So you’ve got 10 business days for your inspection contingency. Is that 10 days to get your requests or your notification to terminate submitted, and then you have another few days to negotiate or do all negotiations have to be done by that 10 days?

Jonathan Lazzarino [00:21:02]:
No, as long as you submit. And there’s a little bit of a gray area. I’ve talked to a few people about that. But it’s as long as you submit your, your inspection asks your request, you’ve met your contingency. So that’s you formally notifying them that you’re not okay with it as is, and that if you can’t negotiate that, you’re going to be able to terminate during that period. So you just have to submit it within that 10 business days. But I have negotiated beyond that before, many times.

Avery Carl [00:21:28]:
All right.

Speaker C [00:21:28]:
Some markets, that second period is actually another, you know, there’s a certain amount of days put to that. So just depends on what market you’re in.

Jonathan Lazzarino [00:21:35]:
Yeah, this, this market doesn’t have a set amount of days, but, you know, everything is, time is of the essence. And you, you normally, you’re pretty quick to negotiate that. It takes a day or two after.

Avery Carl [00:21:46]:
All right, so I think we’re good on that on inspection. I think let’s move to. Well, one more thing. I want to talk about while we’re on inspections and it’s acting in good faith. So what a lot of people will do or not a lot. What I’ve seen people get in trouble with before is they’re only pre approved to get, you know, say one $500,000 property and they want to offer on 10 $500,000 properties and whoever they can get the most money from on the inspection will be the one that they move forward with and they’ll terminate everything else. So I’ve talked about this on other podcasts, but the best way to do it, in my opinion, is to just ride one horse at a time, don’t make 10 offers, and have 10 contracts going at once to try and figure out who’s going to give you the best offer, I mean, the best option, and then terminate the other nine. Because you can get, even though you can terminate for pretty much anything on an inspection, you can get caught up in not, what’s called not acting in good faith, that most contracts, you know, have, have wording in there about where if you’re making offers and, and wasting people’s times and tying up.

Avery Carl [00:22:54]:
Wasting people’s time, not times and tying up people’s properties, making it unavail other people to offer on, you can get pinched for not acting in good faith, which, you know, at the very best, you know you’re losing earnest money. At the worst, you may potentially get sued. Now, have I, have I ever seen that happen? No. But I don’t want anybody who is listening to this podcast to be the first person that that happens to. You really don’t see that kind of stuff in a seller’s market where there’s buyers lined up to buy things. But now I think as things have slowed down and it’s more of a buyer’s market, you can see sellers being a little bit more aggressive about things like that because it will be harder to get the property sold than it was two years ago if you’ve got it tied up for a month with no intention of actually buying it. So I just want you guys to be conscious of that and be aware of it and make sure you make good decisions in terms of, of what you’re doing with offers. All right, next, so let’s, let’s talk about the financing contingency.

Avery Carl [00:23:55]:
So we’ve made it through inspections, we’ve negotiated with the sell. They’re going to fix some things for us. They’re going to give us a few bucks off. So the next contingency of the contract is Typically going to be your financing contingency. So what that means is you’re able to get your earnest money back if for some reason you are no longer qualified to buy the lender to buy the property. So Jonathan, have you ever seen that happen? If so, what’s required to show to the listing side to be able to exercise that contingency?

Jonathan Lazzarino [00:24:27]:
Yes, unfortunately I have seen that happen quite a bit. And usually it’s due to condos not being able to obtain financing due to warrantability issues and things like that with this, with, especially without estate lenders. But the is sometimes you have to provide a letter of denial. So it’s not something that you can just be like, hey, it doesn’t matter, I’m going to get out during the financing contingency, say I can’t get the loan. That’s really not how it works at all. Some of these listing agents, and many of them will ask for a letter of denial which shows that you can’t, you literally cannot be able to obtain the financing. The lender’s not just going to shoot that to you. They, you know, they could lose their, their license as well if they just sent you one without it being legitimate.

Jonathan Lazzarino [00:25:07]:
So you want to make sure that you’re not relying on that contingency, but it is there to protect you. So much so that you even have the terms in this contract that, you know, even if it’s, we have the term checked as conventional financing and you can qualify for a DSCR loan that’s the same rate. Well, you don’t have to go for that DSCR loan if you don’t have that box checked. So you’re very protective with a financing contingency, but you do have to legitimately not be able to obtain financing or you will lose your earnest money because they’ll ask for the letter of denial, another contingency. And by the way, the financing contingency lasts the life of the whole contract so it doesn’t expire. That’s the only contingency that doesn’t have a timeline on it. The appraisal contingency is a different contingency. So you have 20 business days to get the appraisal done.

Jonathan Lazzarino [00:25:55]:
So that does have to be done in a timely manner. You know, that’s roughly a month, you know, 28 days. But, but that one does expire. The financing contingency does not expire.

Avery Carl [00:26:05]:
All right, so you’re pretty protected if something happens with your loan or something happens with your employment and you’re no longer able to get the loan. But where I see people get mad actually for are like actually mad is they’re through their inspection, things start to get real. They’re getting cold feet and they want to terminate because they have cold feet and use the financing contingency. And then they’re like getting angry with their lender because they won’t just write them a letter that says, hey, they’re no longer qualified. I think that people don’t understand that lenders can lose their licenses for stuff like that, for writing letters when that’s not the truth, when you actually could qualify. So keep that in mind. We got to find another way to either get comfortable or, or get out of the contract if, if you actually do qualify for the loan. So you really need to be sure and have all of your due diligence done.

Avery Carl [00:27:00]:
Like, you know, do I like the way the numbers look on this property? Am I happy with the way the market’s going? In this, in this market, all that needs to be done by the end of your finance, I mean by the end of your inspection contingency. Because once you get to finance, if you qualify, then, you know, you’re, you’re pretty locked in.

Jonathan Lazzarino [00:27:18]:
That’s absolutely right. And that’s that 10 business days should be enough time to get insurance quotes to get everything you need to see the actual numbers. And you, you really shouldn’t be surprised after you get out of that contingency period.

Avery Carl [00:27:30]:
Have you. Let’s talk about appraisal for a minute since that’s a separate contingency. Have you ever had somebody get a low appraisal and then the seller agrees to come down to that appraisal amount, but then the buyer says, no, I think I’m just going to walk away. Have you ever seen that happen?

Jonathan Lazzarino [00:27:46]:
I don’t, I don’t think that’s happened to me. Not that I recall.

Avery Carl [00:27:49]:
It’s happened to me one time and I was like, okay, so guys, if that happens again, that’s kind of like a cold feet scenario. Brokers have to get involved, attorneys have to get involved to interpret the contract. What happened with me was in a different state and they said that, yeah, the buyer doesn’t have to. If it appraises low and even if the seller comes down, the buyer still has to agree that they want to move forward so they could technically get out of it. But I’m, I’m not talking about Alabama in this particular instance, but that is something that I’ve seen that I want to address so that people know we don’t get to decide that. I think I’ve seen. I’ve seen clients get upset that we don’t have more control over interpreting the contract. And we, we just don’t.

Avery Carl [00:28:33]:
We’re not attorneys, we’re not brokers. So if, if it’s a weird, nuanced thing like that, it’s time to call attorneys to interpret contracts, not. Not your agent, because we can do a lot of things for you. But. But practice law is not one. All right, so we are, through our financing contingency, it appraised where it needed to appraise. We’re looking good to close. So the last little thing that happens is what’s called a final inspection or a final walkthrough.

Avery Carl [00:28:59]:
So who wants to tell me what that is?

Jonathan Lazzarino [00:29:02]:
So the final walkthrough is really just making sure. If you haven’t got. If you had any inspection items taken care of, you do want to get an inspector or you check it out yourself to make sure the inspection, I mean, the inspection items have been completed. Like, you know, just for example, if you had a water leak repaired in the faucet, you want to just check and make sure it’s not leaking. Things like that. If you haven’t had the inspection items done, you just want to make sure it’s in the same condition as the contract was negotiated. If it’s fully furnished, the couches and everything are still there and it’s not been torn apart by guests, which has not ever happened. I’m not trying to scare anybody, but to me, but, but anyway, that’s.

Jonathan Lazzarino [00:29:42]:
That’s really all you’re doing is making sure it’s in good condition to move forward and close and all the contingent, all the inspection items have been met, completed.

Avery Carl [00:29:50]:
So you’re just checking to make sure that what you ask to be done has been done and that the property is in the same or better condition as when you first went under contract or when it was inspected. It is not a second opportunity to renegotiate the contract. I’ve seen people go in there and say, oh, well, the cleaners didn’t clean. Like, it’s still messy. From the last guest that checked out this morning, I want $10,000 off. That’s not the time for that. The time to negotiate is during the inspection period or if, you know, if you get a lower appraisal. And it’s not the time to start, basically, it’s just not.

Avery Carl [00:30:26]:
It is not an opportunity to renegotiate in any way. All it is is checking to make sure that it is the way that it was when you got under contract and that the inspection items have been done. So who can do a final walkthrough for a buyer?

Jonathan Lazzarino [00:30:40]:
So it really. So agents can’t do that. It’s a, it’s a liability. Brokers won’t allow agents to do it. It’s. It’s not advisable and it’s not allowed. And you could get in some pretty big issues. The.

Jonathan Lazzarino [00:30:52]:
It’s really the buyer that needs to do it. Or there are instances where they can, you know, assign it to the responsibility to a family member as well. But I do advise the buyer themselves to be the one to do it. Or another option is an inspector. If you had, you know, you can get the same inspector who did the first inspection, especially if you had items that they caught on the inspection that they were repaired, they could just go look at those specific items that were repaired and confirm that for you as well.

Avery Carl [00:31:18]:
Yeah, and the reason, guys, that it’s a big liability is that agents are not licensed home inspectors or contractors. It’s outside of our scope to be able to tell you if something was repaired and, and, or if it was repaired. Right. And. Or if there’s something extra wrong. And I’ve said this on other episodes and other markets, but it happened to me one time when I was a new agent. I went and did a walkthrough for a client. Didn’t think anything about it.

Avery Carl [00:31:44]:
We took video, we FaceTimed, and two or three weeks later, he called me mad as a wet hornet, to quote my dad. And because one of there was some squishy flooring around one of the toilets and one of the bathrooms that, you know, I didn’t walk over to the toilet and sit on it. It really wasn’t something you would have noticed unless you were going to use the bathroom. And he came after me about that when I had, you know, I was just walking through to make sure it looked the same. And it looked the same to me. I’m not a squishy floor measure. I don’t know. I didn’t walk over there.

Avery Carl [00:32:16]:
So anyway, I learned the hard way. And yeah, you just really, you, you as a buyer need to be doing your own to make sure that it’s up to your standards of what you were expecting, what you saw when you viewed it the first time versus now or your inspector, who is actually licensed to. To check on those kind of things.

Speaker C [00:32:34]:
What’s the standard there, Jonathan, for linens? Because I know that, that that’s been an issue here. In the Smokies before on final walkthrough is like here the standard is typically if it’s with a property manager, the linens are usually owned by the property manager. So a final walkthrough, the beds will be stripped. You know, and sometimes people freak out about that if they don’t know that going in. Is that the same?

Jonathan Lazzarino [00:32:52]:
There is a different different that it’s the same here. And I try to prep my clients. Sometimes I do forget to mention that and they, they can be surprised. But the good thing is that a lot of the cleaners here, I’m not sure if the same way, but they’ll provide the linen. So I have had clients that have, you know, bought linens and then they had to return them because most cleaners will provide. So that’s why it’s important to talk to your cleaners before closing too. But the vast majority of this properties will not have. Have the linens because either property manager owns them or the cleaners will for the most part.

Jonathan Lazzarino [00:33:24]:
Cool.

Speaker C [00:33:25]:
Yeah, that’s the same. Same here. It’s just, you know, I’ve had that final walkthroughs like oh, all the pictures the beds are look like this and now they don’t. Well, that the linens typically aren’t owned by the owner. So that’s.

Jonathan Lazzarino [00:33:34]:
And another thing is the lock. The other thing is the, the front door lock. Maybe if it’s a property manager that’s likely to be owned by them as well that, you know, whatever.

Avery Carl [00:33:43]:
Oh yeah, the schlage or whatever.

Jonathan Lazzarino [00:33:45]:
That’s right.

Avery Carl [00:33:46]:
One other thing that I want to talk about contract specific is furnishings. So is there a line on the contract for furnishings and guys, why I’m asking this is because in different states the way that furnishings are sold with properties works a little bit differently. In some states there’s a line right on the contract that says hey, furnishings are coming with it at no. At no value to the real estate. So the reason that, that, that it says that is because when you go to get a loan, real estate lenders can only lend on real estate. And if it mentions any furniture or personal property on the contract, they don’t know how much value is assigned to the real estate and how much value is assigned to the personal property. They can’t lend on personal property, so they’re going to make you take it off entirely. So in some states there’s just a spot that says furniture comes with it.

Avery Carl [00:34:37]:
There’s no value to the furniture. In some states you have to do a separate agreement for the furniture. What does it look like here?

Jonathan Lazzarino [00:34:43]:
You don’t need a separate agreement. There is a part of the contract and. And it does read that it conveys that no value. And I even add in there. So if I’ve seen it, I put it to convey as shown. And that’s usually no kickback from the lender. There are still occasional lenders who will kick back the verbiage even on the standard contract just because they may be out of state. And it’s an easy fix.

Jonathan Lazzarino [00:35:04]:
You just have to do a quick addendum. And anyway, there’s ways around that too. But it is built into the contract. So you don’t usually typically need a separate addendum unless the lender pushes back for some reason.

Avery Carl [00:35:16]:
That was the main thing that I wanted to call out on the furnishings. Does anybody else have anything related to contract or process in terms of.

Speaker C [00:35:24]:
I have a question. What do. What do disclosures look like there for like seller disclosure? Is it again, different markets are all different. I know in Tennessee if the seller doesn’t live there for X number of days or whatever, they don’t have to do a full seller’s disclosure. And that catches people off too. And I have no idea what what Alabama is like, but I know every state’s different on that.

Jonathan Lazzarino [00:35:46]:
That’s a really good question, Tim. And that is here there’s a loop, there’s a way around it. So if you don’t occupy the property, you don’t even. You can just check in a on everything. And the vast majority of these are not occupied. So you very rarely get a seller’s disclosure. If you do, it’s just somebody. It’s a rare occasion to get one.

Jonathan Lazzarino [00:36:05]:
Cool.

Speaker C [00:36:06]:
Yes. Similar here. A little different, but similar.

Jonathan Lazzarino [00:36:08]:
I have a another question. As far as bookings go after it closes, is that something that has to transfer? How’s that work? Well, that’s a good question too, Ethan. It really depends on the specific deal a lot of property managers will have. You know, it’s a lot of the listing agents that are also property managers and they will have it built into that. You do have to honor some rentals because the agreement the buyer. It depends on the agreement the buyer had with the property manager as well. It could be part of it. We’ll know that on the front end.

Jonathan Lazzarino [00:36:40]:
So if we don’t know about it on the front end, there is a separate contingency where they have to provide within 5 business days all the rental agreements, everything, you know, all the rental numbers. So we could see that if they miss that contingency and we don’t negotiate on the front end, then it’s all in the buyer’s court. If they’ve slipped up, then we. If they miss that period where they have to provide everything, then we can say, look, we’ll work with you or we won’t. I mean, that’s really up to the buyer at that point. They need to meet that contingency on the listing side. But it’s very case by case.

Speaker C [00:37:10]:
I love how this entire panel is just asking Jonathan questions.

Avery Carl [00:37:13]:
Yeah, yeah. Any other questions? I think that all of this is really beneficial. Yeah. And what kind of stuff does have to be disclosed? Because there’s, you know, some people are like, oh, they didn’t disclose that this light switch was crooked. It has to be a material defect of the house, right?

Jonathan Lazzarino [00:37:29]:
That’s right. Any material defects have to be disclosed. If the seller knows about it now, it is. That’s another tough thing, is most sellers don’t occupy it, so it’s hard to, you know, you’re not going to get a whole lot of disclosure. For the most part, it is a buyer beware state. You do have to do a lot of due diligence.

Speaker C [00:37:47]:
I think that’s a key thing there. That last thing you said is buyer beware. That’s something that not every state is like that.

Jonathan Lazzarino [00:37:52]:
Right?

Avery Carl [00:37:53]:
Yeah. So you really have to make sure that you’re doing your inspections, that you’re coming to look at it, making sure it’s exactly you know what you’re expecting and you know that. Make sure that you’re taking responsibility for your investment. Your agent is here to help you as much as humanly possible. But at the end of the day, it is your investment. You need to make sure that you have control of it, that you understand exactly what’s going on with it. And I guess that’s it. That’s it.

Avery Carl [00:38:18]:
End of. End of lecture on taking responsibility. Anything else? Any other questions for Jonathan that our listeners might benefit from hearing? All right, then. Well, guys, if you are ready to buy with Jonathan, you can reach him at Jonathan at the ShortTermshop.com or agents@the ShortTermshop.com and get you hooked up. If you just want to learn more but you’re not quite ready to jump in there, we’ve got a few ways you can do that. You can join our public Facebook group. It’s called Short Term Rental, Long Term Wealth, Same title as my book. Or every Thursday, we have a live Q and A session where you can ask us any questions that you would like on short term rental investing and you can sign up for that@strquestions.com Thanks y’ all.

Avery Carl [00:39:03]:
Sam.