Protecting Your Interest With Contingencies

Protecting Your Interest With Contingencies

If you've considered purchasing a home and have done any research, chances are you've heard the term "contingencies".  Although it may sound intimidating, contingencies are in place to protect you.  Your contract will contain contingencies that indicate certain events that need to occur in order for the sale to move forward.  If they don't, contingencies help ensure you'll be able to walk away from the transaction with your escrow deposit in hand.

Below are a few of the most common contingencies that almost all Buyers use.

INSPECTION CONTINGENCY

Of all the available contingencies, the inspection contingency is the one most people are aware of.  The inspection period allows Buyers to bring a professional of their choice to the home to inspect various parts of the property and provide you with reports pertaining to it's functionality and safety.  The property inspection is a visual inspection of the home's overall  condition, including major systems such as HVAC, plumbing and electric.  Many Buyers assume that the contingency only applies to the property inspection however, there are several other inspections that may be done during this period including:

  • Wood destroying organisms (WDO)

  • Mold

  • Lead-based pain

  • Strucural

  • Wind Mitigation

Use your best judgement and work with your agent for guidance when writing up your offer.  When in doubt, electing to do more inspections then less can't hurt.  You can always choose not to do one, but you can't ask for more outside of your inspection period.

FINANCING CONTINGENCY

If the bulk of your home will be paid for with a mortgage, you'll want to be sure your offer includes a financing contingency.  This states that your ability to purchase the home hinges on getting a mortgage and gives you the ability to back out of the purchase should your loan fall through.

Even though you've taken the necessary steps to be pre-approved and have a pre-approval letter in hand, you're not out of the woods.  The mortgage process can be tricky.  After you apply for your loan, your lender will begin an in depth approval process, called underwriting, looking closely at your finances, as well as the home you intend to purchase.  They may give you a list of their own contingencies that you'll need to meet in order to receive the loan.

If you're unable to meet your lenders requirements or if something unexpected comes up in your financials, your mortgage company may reserve the right to deny you the loan.  In that case, you have the option of finding alternative financing however, scrambling for such a large sum of money in such a short amount of time is very risky.  This is where having a financing contingency gives you a way to protect your escrow deposit.

APPRAISAL CONTINGENCY

As part of your loan approval, most lenders will require an appraisal which helps the lender determine the market value of the home and whether or not they will issue you a loan up to that amount.  In some cases, the appraised value may be lower than the sale price that has been negotiated with the Seller leaving you, the Buyer, responsible for covering the difference.

The appraisal contingency gives you a way out.  It states that if the appraised value is less than the agreed upon sale price, you have the option to not buy the home.  Often, both parties will try to renegotiate the price to help ensure that the sale moves forward but there are times when you just can't reach an agreement making the financial contingency something very beneficial to have in place.

HOME SALE CONTINGENCY

As the Buyer, you may elect to use the home sale contingency if you first need to sell your current home in order to purchase a new one.  This gives you a specified time frame to find a buyer and move forward with that sale.  And if you're unable to do so, you may choose to walk away.

Keep in mind, this doesn't always give you a lot of bargaining power as you're asking the Seller to take their home off the market  with no guarantee that you'll be able to buy it.  If there are multiple offers on the table, they may choose the offer with no home sale contingency, especially in a busy, fast paced market.

Each home purchase is unique and choosing the appropriate contingencies is an important part of the equation that you'll want to keep in mind when making your offer and in the negotiating process. 

Andrea Payer
Real Estate Consultant
Blake Real Estate

M | 727.281.1368
O | 866.867.4063 Ext 105
andrea.payer@blakerealestate.com
payer.floridapropertytours.com
www.blakerealestate.com


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Phone: 727-281-1368
Dated: May 29th 2018
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About Andrea: Born and raised in lower Michigan, I moved to Minnesota shortly after marrying my husband. As the y...

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