If you are in the market for a home, you probably already know how complicated the process can be. Even when you find your "dream" home and enter into a contract to purchase the home, the process is far from over. Every purchase contract will list conditions that have to be met before you reach your closing, which in most cases is several months away. These contingencies mean that your work, and the homeowner's work, is not over until the list of conditions get satisfied. Read on to learn more about contingencies with your home purchase.
Why Contingencies?
These days, almost any purchase can be returned with a full refund, but home purchases are very different. Once you have closed on the home, you can bet that it will be extremely difficult, if not impossible, to get out of the deal. Simply put, contingencies give you a way to get out of the contract if everything doesn't go as planned. As you negotiate with your seller, contingencies can be added and removed with each offer and counteroffer.
Common Contingencies
Some home-buying purchase issues are so common, they come pre-printed on the contract. The fact that the form already has these conditions should not reduce their importance or the need to ensure that the contingency is properly worded. Common issues addressed include:
- The buyer getting financing: A pre-approval is not a guarantee of financing, and unfortunately the loan sometimes does not get approved.
- A successful home inspection: No home is perfect, and minor issues that can be fixed by the owner before the closing should not hold up the sale. If, however, the inspection finds a major problem, the entire deal could fall through.
- An appraisal that is accepted by the lender: Lenders won't finance a home that appraises for less than the loan amount. If the appraisal comes in unexpectedly low, you may be able to renegotiate the sales price, if the owner is willing.
- The buyer selling their current home: This contingency is unpopular with sellers, since it places the power in the hands of the buyer and the vagaries of the real estate market in general. In a hot market, this contingency may not fly.
- Clear title: If there are issues with the title that cannot be resolved prior to closing, the buyer has an "out" on the contract.
While most contingencies are worth their weight in ink, be careful not to overburden the deal with too many picky conditions. The seller may just decide it's too much trouble dealing with you. Speak to your real estate agent for more information.
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