When buying a home, you should be aware of something called a contingency. A contingency clause means that certain requirements must be met in order for the contract to be binding, and if those terms aren’t met, then the contract could end. Contingencies are included in your real estate contract.
Let’s discuss these possible contingencies:
1st Contingency: Selling your current home – Your offer to buy a home might be based on whether or not you successfully sell your current home. This is called a chain of sale clause. This clause is usually time sensitive, it could be for 30 or 60 days, but after that time frame ends, if your current house hasn’t sold, then your contract ends. This contingency is going to make it hard for you compared to other buyers in a hot or competitive market.
2nd Contingency: Appraisals – An appraisal is a contingency that offers protection for you as a buyer. It’s meant as a way to make sure the property is valued at a specific, minimum amount. If the property you want to buy doesn’t appraise for at least what’s specified, you can terminate the contract. In many cases, you can also get your earnest money back.
3rd Contingency: Inspections – It’s always recommended that you have a professional inspector check out a property before you buy it. Make note that an inspection and appraisal are 2 different things. An appraisal is a value that’s for the lender and is required for underwriting. An inspection looks at the physical condition of a home and other factors that play a specific role in its value. These can be used as part of your negotiations.
4th Contingency: Financing – With a financing contingency, you have time to obtain the financing you’ll need to purchase a home. If you’re not able to get it, then this gives you the ability to get out of your contract and still get your earnest money. With this contingency, the contract usually states a certain number of days that you as a buyer have to get financing. Then, you have until that date to terminate or extend the contract.
What’s important to take away from this information is that contingencies can be an important way to protect yourself when buying a home. At the same time, you need to be smart in how you use them. Too many can cause your offer to be rejected. In a competitive market, sellers aren’t going to want to deal with a laundry list of contingencies. Even if you can’t raise your offer in a multiple offer situation, what you can do is eliminate contingencies to make yourself a more attractive buyer.
If you’re interested in buying or selling a home, give me a call. My team and I are on standby 7 days a week, 9am – 8pm, ready to help you take the smoother road to sold.