Have You Made Home Contingency Plans?
When it comes to the home-buying experience, contingencies play a large part. Home purchase sales contracts can contain contingencies that might be potential stumbling blocks for everyone if you aren't careful. Contingencies apply to both buyers and sellers, so read below to find out more.
Why Have Contingencies?
When you make an offer, you are entering into a legal contract. Often, the buyer puts down a deposit called earnest money so that the seller knows they are serious about the purchase. Earnest money can be several hundred to several thousands of dollars since it's a percentage of the home sales price. That money can be refunded if certain contingencies are not met.
Boiler-plate Sales Contract Contingencies
You might have been so happy to have finally found the home of your dreams that you didn't pay a lot of attention when the offer was prepared. Once you have time to read the contract, you might notice certain provisions are printed on the contract. Those ready-to-go provisions represent common contract rules in your state and list common contingencies as well. Here are some contingencies liable to show up on your sales contract:
- Buyer gets financing. If you are like most buyers, you need a mortgage approval before you can close. This common contingency lets you out of the contract and refunds your earnest money if your financing falls through.
- Home appraisals. Buyers and lenders expect the home appraisal to be appropriate to the funding of the mortgage. If the home appraises at a lower than expected price, all parties may bow out of the deal.
- Home inspections. It's not realistic to expect a home to be 100% perfect. If the home inspection turns up a very serious and expensive issue, however, this contingency allows the buyer an out.
It should be noted that problems with any of the above contingencies should not necessarily be considered deal-breakers. The parties may need to change the sale price, allow more time for financing, or make needed repairs.
Other Contingencies
Other than the usual contingencies, buyers and sellers alike may add contingencies to the contract. Unusual contingencies can create problems in some cases. Among those are deadlines for closing on the home due to a seller needing to buy another home. On the part of a buyer, asking for an extra-quick closing could mean putting sellers out of their home before they are prepared to move. Other contingencies might include the inclusion of certain items with the home purchase (like a hot tub, for example) or asking the seller or buyer to pay certain closing costs.
To learn more about contingencies and single-family home purchases, speak to your real estate agent.
