While spring is usually one of the busiest times in the real estate market, COVID-19 has had a significant impact on the market. If you were planning to sell this spring, you may be wondering
Common Real Estate Contingencies
Whether you are purchasing or selling a home, real estate contingenices are something you are about to become very familiar with. Contingencies are a part of every purchase agreement for a home and are often the primary factor determining the strength of an offer. Read on to learn about the common real estate contingencies.
What is a real estate contingency?
Simply put, a real estate contingency is a condition that must be met in order for the deal to go through. It is a requirement for the completion of the sale. Contingencies are sometimes referred to as "walkaway clauses." This nickname is because a contingency allows a purchaser to walk away from the deal without consequences. Below are the most common types of contingencies found in real estate.
Home Inspection Contingency
This is one of the most common types of real estate contract contingencies, and with good reason. This contingency gives home buyers a legal "out" if they are unhappy with the results of the property inspection. Minor deficiencies, such as a leaky faucet, can be repaired by the homeowner prior to closing. Other items might be more severe and harder to fix, like a major foundation crack. This contingency allows you to back out of the deal if you're not comfortable with something uncovered during the inspection process. Most agreements will contain this contingency, although at times it is waved in competitive or multiple offer situations.
Mortgage Financing Contingency
This is another common type of purchase contract contingency. Most home buyers use mortgage loans to cover the cost of their purchase, or at least a big chunk of it. The problem is that mortgages can "fall through" somewhere between the purchase agreement and the final closing. The buyer gets pre-approved for a loan and makes an offer on a house. The seller accepts the offer. A week later, the mortgage lender's underwriter finds a problem with the application file, and the loan is denied. In such cases, the buyer would want a way out of the purchase contract. That's what a financing contingency does.
Sale of Current Home
This provision makes the sale contingent (or dependent) upon the successful sale of the buyer's current home. If the buyer is unable to sell his/her current property, they have a legal way out of the purchase contract. As you can imagine, sellers are often reluctant to accept this type of offer and might do so only as a last resort. In a competitive market where buyers are competing for limited inventory, this type of purchase contract contingency can actually work against the buyer. But in a slower market, sellers might be more inclined to accept such an offer.
Mortgage lenders use home appraisals to make sure the property being purchased is worth the amount the buyer has agreed to pay (at least). In some cases, the property will appraise for less than the purchase price. A home appraisal contingency gives you a chance to renegotiate the purchase price to reflect the appraisal, or to back out of the deal entirely.
The title is a legal document that shows who has owned a home in the past, and who currently owns it. It is the official history of ownership. During a typical home-buying scenario, a title company will check the title to make sure it is "clear" of liens, disputes, or other issues. Some title issues can be resolved between the purchase agreement and the final closing. Others can be more problematic. Title contingencies give buyers a way out of the contract, in the event of unresolvable issues.
If you find contingencies confusing - don't worry! At Augustedge we are highly trained and experienced at both writing and negotiating contracts. We will work to make sure your best interests are served, and are here to advice you which contingencies are necessary and which can be waved. Call us today and let us help you find your dream home.
Information orignally found on Home Buying Institute.
From farming in Warden, WA, to living in Australia and then back to Wenatchee, Iâ€™ve always been profoundly aware of the fundamental need to help others. Whether through their financial picture or he....