Once you've finally found the perfect home and the buyer has accepted your offer, it's only a matter of weeks before you will be the owner of a new home. The contract to purchase has been signed, and the sale will move ahead toward the eventual closing in a few weeks. No matter how "perfect" you may view your new home, all homes have issues, and the contract has provisions that cover those issues. Contingencies allow a sale to go forward based on conditions, so read on to learn more about this important part of a real estate deal.
What are contingencies?
Nowadays, almost anything you buy can be returned later on, but that is not the case with houses. The responsibility to understand what is being bought and sold is shared by both the buyer and the seller. The seller must disclose known issues, but it is up to the buyer to have the home inspected and to understand and accept the issues and to address them in the contract. This is done with contingencies, which are clauses added to a contract that address not only issues with the home, but also the seller's issues with the buyer.
Some common contingencies
Contingencies are not uncommon; almost every sales contract has them, and many of the more common ones are printed on the contract template. Some common contingencies include:
1. Home Inspection: Most lenders require a home inspection, but you would be wise to have one performed regardless. In most cases, the sale is dependent on a home inspection that finds no major problems with the home. If some are found, the seller may agree to lower the price or sweeten the deal with closing costs or other financial incentives to make up for the problem. This particular contingency allows the buyer to get out of the sale if there are major problems with the home.
2. Appraisal: Just like inspections, a home appraisal dollar amount that at least covers the sales price is required by the lender. Homes that appraise unexpectedly lower can open the door for negotiations.
3. Clear Title: Issues with the title must be resolved before closing, or the sale might be called off entirely.
4. Financing: While a preliminary approval of financing has become commonplace if something catastrophic happens to your credit before the closing, this contingency gives you a way out without losing your deposit.
Be aware that adding too many potentially deal-killing contingency clauses to a sales contract could negatively impact the entire sale, so use common sense and count on your real estate attorney to advise you on your real estate properties along the way.