When buying or selling a house, there are a few things called contingencies that you should be aware of. I'd like to share five different contingencies to keep in mind when going through the home buying and selling process. But first, let me explain what a contingency is - these are provisions that must be met for the transaction to go through. If they aren't met, a buyer has the right to walk away from the deal and will keep any money they put down in earnest. Here are some of the most common contingencies.
Home inspection contingency: This gives the buyer the right to have the home professionally inspected and request repairs by a certain date — typically within five to seven days of the purchase agreement being signed. You may be required to make home repairs for structural defects, building code violations or safety issues. One good thing about repair requests - most are negotiable giving you the option to haggle over which fixes you're willing to make as the seller or which fixes you're requesting to be completed as the buyer.
Appraisal contingency: For a mortgage lender to approve a home buyer’s loan, the home must pass appraisal — a process during which the property’s value is assessed by a neutral third party. The appraisal verifies that the home is worth at least enough money to cover the price of the mortgage. If the buyer can’t make their mortgage payments, the lender can foreclose on the home and sell the property to recoup all or some of its costs. Generally, the buyer is responsible for paying for the appraisal, which typically takes place within two weeks of the sales contract being signed.
Financing contingency: A financing contingency, also called a loan contingency or mortgage contingency, protects the buyer in the event their lender doesn’t approve their mortgage. Although the timeframe for financing contingencies can vary, mortgage lenders report that buyers generally have about three weeks to obtain mortgage approval.
Sale of current home contingency: Depending on the buyer’s financial situation, their offer may be contingent on the sale of their home. Usually, buyers have a window of 30 to 90 days to sell their house before the sales agreement is voided. This contingency puts you, the seller, at a disadvantage because you can’t control whether the buyer sells their house in time.
Title contingency: Before approving a mortgage, a lender will require the borrower to “clear title” — a process in which the buyer’s title company reviews any potential easements or agreements that are on public record. This ensures the buyer is becoming the rightful owner of the property and the lender is protected from ownership claims over liens, fraudulent claims from previous owners, clerical problems in courthouse documents or forged signatures.
It sounds like a lot of boxes to check off before buying or selling a home, but these contingencies are standard for most real estate sales contracts. There’s one exception: the sale of current home contingency, which tends to be used more often in strong buyer’s markets when buyers have greater leverage over sellers.
That being said, contingencies are always negotiable...with one exception. Mortgage lenders require borrowers to have appraisal financing contingencies or they won’t approve the loan. Aside from that one situation, it’s up to you to decide what you’re comfortable agreeing to. This is something I'd be more than happy to help you with as your real estate agent. If you have any other questions on contingencies, how to negotiate them and when to use them, just give me a call.
Thinking of selling and/or moving to Brookings, Volga, or any surrounding areas? Got questions? I’m here to help! Visit BrookingsHomeTeam.com for more details!