You wouldn’t buy a used car without making sure that it was safe and road worthy, would you. If you do then you are accepting all the risks of its condition. The same goes when you are buying a home and considering that buying a home is one of the most expensive investments you will ever make in your life you need to take care when entering into a sale and purchase agreement for property.
Adding contingencies to a purchase and sale agreement will give you the opportunity to inspect the home, find financing and see if the appraisal value is close to the list price of the home. Some contingencies are a standard part of a contract but you can add items that will give you an out if you find that the home is not suitable for you to purchase.
What is a contingency in Real Estate?
A contingency in a real estate transaction is a clause in the sales contract that makes the contractual agreement dependent on the outcome of certain events. When contingencies are in place, the stated criteria must be met for the sale to make it to closing. This includes situations where the buyer has not yet sold their home, as well as caveats to the contract concerning the buyers ability to obtain financing, home inspection and the outcome of the appraisal.
Is the sale contingent on financing?
If you are pre-approved with a lender then you should have a good idea what the terms of a loan may be. Even if you’re not pre-approved, you can add general loan terms to the contract stating that you will have a certain number of days to acquire a loan for the home you wish to purchase. If you can’t obtain a loan in the allotted amount of time, you can either re-negotiate with the buyer for more time or continue to try to obtain a loan, or take your down payment and walk away.
Is the sale contingent on the outcome of a Home Inspection?
It should be and a professional home inspection can save you thousands of dollars and will help you decide if the home is really worth what the seller is asking. Especially if expensive material defects are found during the inspection. Sellers are required by law, in most states, to provide a ‘sellers disclosure’ within a couple of days of a contractual agreement on a house. However, you should use ‘due diligence’ in the purchase of your home and determine for yourself if the home is what is stated to be.
You can opt for an inspection contingency that will give you a determined number of days to have the house inspected by yourself, a professional home inspector or other professionals who can determine if the home has any material defects. If it does, you will have the opportunity to renegotiate the contract. At this point, you can try to get the seller to remedy any material defects that are found. Or, you can ask for a credit at closing, choose to make the repairs yourself or you can walk away from the deal, with deposit in hand if the defects affect the material value of the home and the seller refuses to remedy the problem.
Is the sale contingent on the Appraisal?
It should be. In some instances, a home won’t appraise for the listed price. An appraisal contingency will give you the option to back out of the deal if the home doesn’t appraise for the listed amount. You will also have the option to renegotiate the price with the seller or you can agree to the listed price and pay the difference. Why, though, would you want to pay more for a home than its appraised value?
Do you need to add a contingency for the purchase of Home Insurance?
Many insurance companies have become reluctant to insure homes in certain parts of the country and property that is in a flood zone can be very expensive to insure. Possibly more expensive than you knew or are willing to pay. Required by your lender in order to obtain a loan a contingency regarding the ability to obtain adequate home insurance will give you an out if you are unable to obtain it or can’t afford it.
Do you need a contingency for the Title?
Having true ownership of your property is one of the most important pieces of the transaction. The title proves ownership and is what you are paying for. Yes, you are getting a home on a lot and all that goes with it but the title say it’s yours. Adding a contingency for a clear title can be cheap insurance when buying a home.
A title search is already a component of the sale and a clear title will assure that you don’t get scammed by some unscrupulous seller or have to wait weeks for a signature from Aunt Emma, who is currently on a world cruise, to clear the title of the home you are buying. A title contingency in the contract will set things in motion quickly so that you will know if the deal can continue or needs to be terminated.
Will your contract to purchase a home have contingencies?
It should and some are a part of standard real estate contract forms. It is up to you and the seller to agree on the contingencies and their time limits when agreeing to the initial contract. Adding contingencies to your purchase and sale agreement give you a certain level of insurance when you are purchasing a home.
2 Point Highlight
A contingency in a real estate transaction is a clause in the sales contract that makes the contractual agreement dependent on the outcome of certain events.
Adding contingencies to a purchase and sale agreement will give you the opportunity to inspect the home, find financing and see if the appraisal value is close to the list price of the home.
