June 13th, 2017 5:03 AM by Jackie Graves, President
In hot real estate
markets like San Francisco or New York, buyers often have to go the extra mile
to make their offer stand out. Some buyers offer sizeable down payments, others
write strategic offer
letters, some even drop
cookies at the door.
And in markets where
multiple offers are the norm, it’s not uncommon to waive contingencies, which
give buyers the right to back out of contracts under certain circumstances.
But not so fast. .
.While removing a contingency could result in a faster transaction and be
attractive to a seller, you could find yourself paying for the removal of
unnoticed black mold in the attic or absorbing the cost of a lower valued
appraisal. On the other
hand, if you tie up a contract with too many “what ifs,” the seller is more
likely to reject your offer due to contract delays, risks, or potential costs
it forces them to
are more important than others to include. Purchase agreement contingencies are
related to the final cost of a transaction and protect buyers from the largest
unexpected fees. And then there are tier-two contingencies, like a homeowners
association clause that can help you pull out of a transaction if there are
unanticipated rules (like not being able to paint your house a certain color).
The bottom line:
Keep your offer shielded from the unpredictable and you’ll be able to walk away
from the deal without losing any money. But in a hot market with
consider removing the less important ones. Here are four important
contingencies to keep in your offer, and arguably the most important one below.
A home inspection contingency — strongly recommended by
most real estate agents — specifies that you will get a licensed home inspector
to check the property within a specified period (typically seven days) after
you sign the purchase agreement. Once the inspection is complete, you’re
allowed to request that the seller makes repairs, and it’s up to you to decide
what repairs you request. The seller then has the option to make the repairs or
counter. If an agreement can’t be reached, buyers can back out of their
purchase with their earnest money deposit intact.
This clause states that your offer on the
property is contingent on being able to secure financing. The main goal of a financing contingency is to ensure that if you can’t obtain
a loan, you’ll be able to get your earnest money deposit back. The clause
specifies that you have a certain number of days within which to get your
mortgage approved by your lender. Many lenders recommend homebuyers allow for
up to 14 days.
Many buyers need the equity in their current
home to purchase a new one. This contingency means that if the sale of a
buyer’s current home falls through, so will the sale of the home the buyer
wants to purchase. Including a prior-sale contingency in the contract for your new home
provides an opportunity to withdraw the offer if your existing home does not
sell by a certain date. If you need to sell an existing home before you buy a
new one, it’s certainly an option to consider; however, be warned that it’s
also one that has been known to scare away sellers.
This contingency is
arguably the most important because it could save you up to tens of thousands
of dollars. Typically, when you buy a house, you put in an offer, and if the
seller accepts it, your lender orders an appraisal. But if the appraisal comes
in lower than the price you agreed to pay, you’ll have some decisions to make —
mainly how to make up the difference in the home price and the loan amount.
You’ll have more options if you’ve included an appraisal contingency. Such a contingency usually stipulates that the
appraisal must come in within 5% or 10% of the sale price, or sometimes even at
or above the sale price. You can try to negotiate with the seller to meet you
halfway, but with this contingency, it’s your call to determine whether you’re
overpaying for the property and want to back out.
By Sam Brannan - To view the original article