What contingencies are typical in a purchase contract and what do they mean for buyer and seller?
When I work with buyers looking for homes for sale, they often send me listings they saw on-line but are not available. Why? Because the listing status is "contingent", meaning that the contract includes one or more contingencies which have not been met. For the buyer a contingency is a protection from a condition that may not be met and it gives the buyer a way to get out of the contract. For the seller, some contingencies in a contract are not a problem, while others can make an offer very weak because the contingency is likely not to be met.
As a buyer, a home purchase is one of the largest financial commitments you ever make and you want to be able to protect your investment throughout the purchase process. When you are ready to present an offer on a home, adding a contingency in the contract can give you time to assess the property and feel confident that it's a sound investment.
Let's take a closer look at five common contingencies to safeguard your purchase:
1. A financing contingency ensures that you are not liable if something goes wrong with your loan. If you are unable to secure a mortgage, or the terms and conditions of your loan change significantly during the approval process, you can back out of the contract without any penalties.
2. An inspection contingency gives you time to have a professional home inspection performed at the property. Should maintenance, structural, electric or plumbing issues be found, you can negotiate with the seller to make repairs or receive a credit towards the sale price to account for the home's condition.
3. An appraisal contingency protects you if the lender's appraisal comes in lower than the agreed upon purchase price. When this happens, you have three choices: you can pay make up the difference by obtaining additional financing or paying it out of pocket; or you can renegotiate the purchase price with the seller. When none of that works, you can cancel the contract and get your earnest money back.
4. A home sale contingency is important if you have to sell an existing home in order to buy a new one. Essentially, it says your purchase depends on your ability to sell your current home by a specific date. If you have not accepted an offer by that date, you can withdraw and get your earnest money back. Sellers don't like this contingency, for obvious reasons.
5. An occupancy contingency protects you should you need to move into your new home by a specific date. It gives you possession of the home on the date you specify. A seller is not likely to accept such a contingency.
It's no secret that today's housing market is a competitive one and bidding wars can be intimidating. By structuring contingencies correctly, you can protect your purchase and still present a strong offer. Contact me to discuss how.
Posted by Andreas Holder on