Important Contingencies

When markets are competitive, a buyer should do their best to make their offer stand out. They may offer significant down payments, strategic offer letters, or leave a fancy bottle of wine on the doorstep. 

Some sellers receive several offers that are similar, but very different in the contingencies field of the contract. It isn't uncommon to waive contingencies, which allows buyers to back out if they need. 

Hold on! Waving a contingency may speed things up and entice the seller even more, but you could find yourself paying for the black mold treatment in the basement, or things of the like. Keep in mind if you write in too many contingencies in your offer it may discourage the seller for potential contract delays, risks, or the cost they could incur.

Some contingencies are needed, like the purchase agreement contingency which protects buyers from unexpected fees. There are also things called two-tier contingencies, which protect the buyer if they want to pull out after finding they cannot paint their house because of the HOA rules. 

Pretty much you want to keep your offer protected from the unpredictable and you can walk away from a deal without losing a penny. However, when the market is competitive, you may want to take out the smaller ones. Below are the four most important contingencies you'll want in your offer.

Inspection contingency

The home inspection contingency is wet any decent real estate agent will recommend. This ensures you get a licensed home inspector to view the property within a week of signing the purchase agreement. After the inspection you may request the seller to make repairs of your choice. At this point the seller may make the repair, or counter offer. If an agreement cannot be reached, the buyer is allowed to back out of their purchase agreement with their deposit back.

Financing contingency

This one states that the offer is contingent on being able to acquire financing. This protects the buyer from losing their earnest money deposit if they cannot get a loan. In this clause you have a limited number of days to get your mortgage approved by your lender. The average time is two weeks.

House sale contingency

Most buyers need their current equity to buy a new moment. This contingency is there to protect the buyer of the sale on their current home flops, so will the sale of the home they are trying to buy. 

If you have a prior-sale contingency in your contract this allows you to back out of the offer if your existing home does not sell by a certain date. On the other hand, this has been known to scare away the sellers.

Appraisal contingency

This is the mother of all contingencies because it has the possibility to save you tens of thousands of dollars. Usually, once the seller excepts your offer your lender will order an appraisal, and if the appraisal comes in significantly lower than what you agreed to pay, you're now in between a rock and a hard place. You will have to figure out how to bridge the gap in differences of prices, and the loan amount. Having an appraisal contingency gives you several more options, as this one typically says the appraisal must come within 5% to 10% of the sale price. You can see if the seller will meet you halfway, but with this contingency you have the power to determine if you will overpay for the property, or walk away.

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