Imagine making an offer on a house, the seller accepting it right away, and the two of you going through the closing process without any snags until you receive the keys. Although it’s conceivable, the typical home-buying process involves haggling, counteroffers, and back-and-forth communication between the two sides to achieve an agreement. Additionally, the contract may fail under specific circumstances.
Contingencies shield both buyers and sellers from these common aspects of the house-buying process as well as any issues that might surface before a home sale is closed. They aid in shaping a buyer’s offer and can be deliberately employed to improve its allure. Whether you’re purchasing a home for the first time or have done so in the past, you should be aware of common real estate contingencies and the part they play in submitting an offer.
Putting in a conditional offer on a house
Both you and the seller have obligations to complete the transaction after you and the price of the home have been agreed upon. It is the buyer’s responsibility to arrange financing, get the house examined, and have the asset valued. When the moment comes, it is the sellers’ responsibility to prioritize the offer that is currently on the table and welcome the home inspector inside. The contract’s agreed-upon contingencies shield both the buyer and the seller from any problems that might develop during this time.
Home buyers have a variety of options, including the option to cancel a real estate transaction while keeping their earnest money intact or to renegotiate the terms of the contract. Even if their presence provides security and negotiating power, there are instances when their exclusion is just as useful.
There is fierce competition among purchasers in a seller’s market. As prospective house buyers contend for a constrained number of listings, escalation clauses, bidding wars, and all-cash bids become typical. In such market circumstances, buyers generally waive their contingencies to sweeten their offers. Lack of protection makes this riskier, but given the level of competition they face, purchasers are forced to make their offers as attractive as possible.
Contingency for home inspection
Before the deal is finalized, you’ll hire a home inspector to properly investigate the house once you’ve placed an offer. This clause gives you and your agent the option to cancel the deal altogether or make a new offer to the seller that takes into account the home’s worsened condition if they find problems with the property.
Contingency for funding
A financing contingency, also called a “mortgage contingency,” allows the buyer a set amount of time to find suitable financing to buy the house. Even if you have a mortgage that has been pre-approved for you, you might not be able to get the suitable financing for the house. This clause gives you the option to cancel the agreement and receive your earnest money if you are unable to secure financing for the purchase, and it also gives the seller the right to relist the property.
Evaluation contingency
According to an appraisal condition, the house must appraise for at least the sales price. It usually ensures that your earnest money will be recovered and enables you to back out of the transaction if the property’s appraised worth is less than the sales price.
Contingency for home sale
You might want to include a home sale contingency in your offer if you’re buying a new house while also selling your old one. This condition sets forth the deadline by which you must sell your current residence in order to proceed with your bid. The agreement expires if your house isn’t sold by the deadline.
Property sale contingencies are financially tempting because they let buyers utilize the money from the sale of their current home to pay for their new one. These conditions, however, make sellers wait until the sale of the buyer’s existing house, which means they are unlikely to accept such offers in markets that are competitive.
Title contingency
A search will be done to make sure that any liens or judgments issued against the property have been satisfied before the sale of a home is finalized. A title contingency enables you to voice any concerns you may have regarding the property’s title status and requires the seller to resolve these concerns before the transfer of title can be finalized. This contingency also enables you to back out of the purchase and start looking for another home if the title search for the home reveals an unpaid debt or unpaid taxes.
To speak to an experienced real estate professional, contact Berkshire Hathaway HomeServices at (310) 373-0021.