Contingency Clause in Land PA

Land Investing
1

I have some questions about contingency clauses and EMD in off-market land purchase agreements:

  • Are any of you using contingency clauses?
  • If so, how long is the contingency period?
  • Do you use EMD’s?
  • If so, how do you address this in the PA?

Thanks in advance!

2

For contingency clauses, I usually go with 30-45 days for due diligence on land. This gives me time for soil tests, surveys, title work, and all that good stuff. Sometimes, I need longer if there are potential environmental issues or zoning complications, but I try not to ask for too much time since sellers don’t love having their property tied up forever.

On earnest money, I don’t offer this up or put it in my PA unless they ask for it. The contract is still binding either way. Once deals get bigger, sellers start wanting to see some skin in the game. Can’t really blame them for not wanting to take their property off the market if they’re not sure you’re serious.

When I do use earnest money, I make sure the purchase agreement spells out that it goes to the title company for escrow, when exactly it becomes non-refundable (usually after my contingency periods are up), and that it gets credited toward the purchase at closing. I typically do somewhere between $500 - $1,000 or 1%- 3% of the purchase price, depending on the situation.

What’s been your experience with sellers? Do you ever get pushback if/when you don’t offer an EMD?

3

EMD hasn’t come up yet, but I suspect it’s becasue we’re looking at smaller/cheaper lots.

I’m assuming you’re looking at a 60-90 day close date if you’re contingency period is 30-45 days?

4

It just depends on the specifics of the deal and which contingency items are also checking a box needed to close, but yeah, those numbers are often how they end up working.