In real estate transactions, contingencies are conditions in the sale agreement that must be met for the transaction to move forward. Contingency clauses protect both the buyers and sellers, giving them room to back off from a contract if certain terms are not met. Both parties need to agree to the terms of every contingency and sign the contract. Here is a breakdown of the common contingencies you are likely to come across when buying or selling a home.
Most buyers do not have immediate cash at hand to purchase a home. That means they will need a mortgage. If you are looking for a home loan, this contingency can protect you. Basically, it gives you time to apply for a mortgage so as to get a loan for the house. If you do not get the money needed for whatever reason, this contingency allows you to back out of a sale. When most buyers get pre-approved, they always assume that getting a loan is automatic. But unfortunately, that is not always the case. If there are issues with your financials even after pre-approval, the mortgage company can choose to deny you the loan.
When buying a home, never overlook home inspections as they will benefit you in the long run. For instance, if you have been looking at homes for sale and are considering a purchase, an inspection will confirm that the house you want is in great shape. Besides a general inspection, things like mold and insect damage inspections are also important. Once the inspections are done, this is where the inspection contingency comes in. You can walk away from the sale of a home if the inspection brings up too many issues that you do not want to deal with.
A title contingency ensures that the home buyer gets a clear title upon closing. That means there are no claims against the property owner. Buyers want to be sure that once they purchase a home, no one will approach them, claiming they own part of or the whole property. A title company will conduct a title search to ensure that the seller holds the right to sell the company. A title contingency allows home buyers to abandon a sale if it seems like the property has some ownership issues.
A lender will often approve a loan after receiving a satisfactory appraisal. A home appraisal is meant to determine what is the market value of the house you want to buy. For instance, a seller may price a house at $250,000, but the appraisal reports suggest that the house is $220,000. The mortgage company will only lend you what they consider to be the fair market price, which is $220,000. You have to decide how to come up with the additional $30,000 or negotiate with the seller. But if you cannot come to an agreement, an appraisal contingency lets you walk away from the deal without any repercussions.
House Sale Contingency
This contingency is a favorite for many home buyers, and with good reason. Sometimes, timing can mess with your plans. Most homebuyers usually try to sell their homes as they shop for new ones. In such circumstances, a home sale contingency will protect you as the buyer. If you are yet to complete the sale of your current home within a particular time, you can walk away from a deal without any penalties.
Contingencies are valuable as they protect you legally. However, real estate experts also suggest that one ought to be careful not to clutter the contract with many contingencies, especially in a sellers’ market. When the demand for homes is high, a seller has the luxury of multiple offers and is likely to turn down buyers with too many contingencies.