Buyer’s remorse is the worst! And since buying a home could be the largest purchase you may ever make, buyer’s remorse on a home purchase is a next-level kind of regret. If you’re considering buying a home, you want to feel confident that your investment is solid and your new home is up to the task. That’s where contingencies come in! A contingency is a condition you put in your homebuying contract. It’s a protective mechanism that gives you an effective way out if certain conditions aren’t met. Keep reading to learn more about homebuying contingencies.
- The contingency clauses give you the right to renegotiate or cancel the deal if specific conditions turn out to be unsatisfactory.
- An appraisal contingency offers you the right to back out if a professional home appraisal comes in lower than the selling price.
- A financial or mortgage contingency gives you time to secure a mortgage and the right to cancel if financing is denied.
- An inspection contingency gives you the right to have the house inspected by a set date and you can back out if the inspection reveals major issues with the house.
Homebuying Contingencies: What They Mean
In most cases, a contingency clause is included in the offer to buy a home. Essentially, a contingency clause gives you the right to walk away from the contract under specific circumstances that must be negotiated between the buyer and seller. Contingencies can include details like timeframe and specific terms, such as the buyer having 14 days to inspect the house or 21 days to secure a mortgage.
Any contingency clause should be written and outlined clearly for all parties involved to understand. And if the conditions of the contingency aren’t met, the contract becomes null and void and the party that’s not in breach can back out without legal consequences. However, if the conditions are met, the contract is legally enforceable, and any party that decides to back out would be in breach of the contract.
Types of Contingencies in Homebuying
Here are the most common homebuying contingencies:
Home Inspection Contingency
Home inspection contingencies are one of the most common and crucial homebuying contingencies. According to NAR, over 80% of homebuyers include a home inspection contingency in their real estate agreement. In a hectic, fast-paced, and emotionally overwhelming housing market, a home inspection gives you peace of mind and confidence in the transaction.
When you include the contingency in your contract, you specify that you plan on having a certified inspector inspect the house within a specific timeframe. If the inspector reveals issues (86% of inspections reveal issues that need fixing), you’ll request the seller make repairs or lower the price of the house. The contingency clause should specify how much time the seller has to respond. If the seller is unwilling to negotiate or repair, the home inspection contingency allows you to terminate the contract and recover your earnest money deposit.
Generally, a satisfactory appraisal is one of the conditions that your lender has for granting you the mortgage. Keep in mind that an appraisal determines the fair market value of a property. The appraisal contingency ensures that you’re protected if the selling price exceeds the fair market value.
Let’s put it this way: You and the seller agreed on a $300,000 sale price, but the appraised value is $270,000. The lender is allowed to loan you up to the appraised value, so there’s a $30,000 difference. In the best-case scenario, you can renegotiate with the seller to lower the price or you can find additional financing to cover the $30,000 balance. However, if both options fall through, the appraisal contingency allows you to walk away from the deal unscathed.
A title to a property is the record of its ownership. It’s the legal document showing who has owned the house, past and present. It’s also a record of any judgments and liens that could have been made against the property. Typically, a title company will review the title of the home you’re buying before closing and resolve any issues to ensure the title is transferred to you clear and free. However, in some instances, there are issues with the title that can’t be solved before closing. That’s where the title contingency comes in. The contingency provides you with the option to leave the deal instead of having to deal with the possibility of contested ownership or paying off someone else’s debts.
For most of us, a mortgage is essential in getting the home of our dreams. The financing or mortgage contingency helps out buyers who don’t get the expected mortgage they need to finance the home purchase. That’s often because, while you may have been preapproved for the mortgage, something could change in your financial situation before the loan approval. Perhaps you’ve taken out a small loan or missed a payment, which could affect your credit score and chances of securing the mortgage. The mortgage contingency allows you to back out of the purchase agreement without breaching the contract and losing your earnest deposit.
Homebuying Contingencies: Why You Need a Real Estate Agent
While it’s crucial to protect your interests, usually, the more contingencies in your offer, the less enthusiastic the seller might be to deal with you, especially if it’s a seller’s market. And when you do include contingencies, keeping track of deadlines so nothing sneaks up on you can be challenging. That’s why our real estate agents are invaluable assets when it comes to homebuying contingencies.
With our skills and expertise, we’ll guide you on the contingencies to include in your offer to make it more attractive to the seller. Besides, we’ll keep track of deadlines so you won’t miss an important date to enforce a condition that you or the seller have to meet. Call us today for more information!