As a buyer, you’re able to choose the types of contingencies you include in your offer. The exact ones you choose will depend on your circ*mstances, the market and your real estate agent’s recommendations. Wondering what contingencies you might consider? Here are several common ones.
Home Inspection Contingency
The home inspection contingency allows a home inspector to assess the condition of the home, checking out all the aspects of it that might not be visible to the eye or that the current buyer might not think about, like grading or flashing.
If the inspection reveals serious flaws in the home’s condition that have been spelled out in the contract, the buyer may back out, or the buyer and seller may negotiate over who will pay for it to be fixed.
In other words, even though you might have a home inspection contingency, you don’t have to walk away because there’s an issue with the house. You and the seller might agree on how to cover the repairs and resolve them.
A mortgage contingency gives the buyer a specific period of time to secure financing. The good news is that this is a financing contingency that can be mostly handled by doing some due diligence. First, you want to ensure that you have been preapproved for a mortgage as a buyer, not just prequalified.
The preapproval puts you far closer to actually getting the mortgage as it entails relatively lengthy paperwork upfront to make sure your finances are in order. But remember that being preapproved still doesn’t mean you qualify for a mortgage. Once you make an offer, you’ll need to do your final check with your lender.
Ideally, all the paperwork will fall into place because you’ve already gone through the majority of it in the preapproval phase. But there are still elements that can trip you up, such as if you’ve changed jobs, experienced a dip in your credit score or had another financial issue that unexpectedly makes you a less-worthy candidate. It’s important to take excellent care of your finances during this phase to ensure there are no unpleasant surprises when you finalize your mortgage.
Appraisal Contingency
The appraisal contingency comes into play most often when you’re taking out a mortgage. The seller might be asking for a wild sum, and you might be all too happy to pay it, given the values in the neighborhood. But that asking price may not necessarily reflect the value of the home. Lenders require an appraisal, which is a third-party look at what the home is actually worth.
Even though both parties agree on a sale price, the lender can’t offer you a mortgage that’s larger than what the home is appraised for. In a very overheated or rapidly changing real estate market, meeting that appraisal number can often be an issue, but that doesn’t mean you’re out of luck.
If you have the cash to pay more upfront to make up the difference between the amount of the mortgage loan and the agreed-upon purchase price, or you can renegotiate, you may be able to overcome this.
Title Contingency
Many buyers have been fooled by this tricky piece of paper. The home’s title reveals who owns the house and who has owned it all along the way.
However, sometimes homes don’t have “clean titles.” They might have encumbrances like easem*nt issues or a mortgage lien from the past.
Any claims against the title can make a purchase risky for buyers. The good news is that title searches should reveal those problems before closing. And even if there’s an issue that you’re able to clean up, it’s wise to get title insurance, which protects against future claims.
Home Sale Contingency
This contingency is related to the buyer’s financial situation and notes that the sale will only go through if your current home sells first. While this can protect you, it’s common for sellers to reject this in a seller’s market, as the seller knows there may well be another buyer who doesn’t have this restriction.
Of course, that doesn’t mean that you have to have the cash on hand to buy the new house before you sell yours. Your lender may be able to help you with a bridge loan or suggest other financial strategies. Rocket Mortgage® doesn’t offer bridge loans, but our friends at Rocket LoansSM may be able to help you with a personal loan.
Another way around this issue is to ask for a later-than-normal closing date, which gives you more time to sell your house. Remember that some sellers might reject your offer because of this if they want to close the sale quickly, but it might be attractive to other sellers shopping for a new home themselves or who want to finish the school year in their current home.
What Does Contingent Mean? As a general term, contingent means “upon certain conditions being met.” In the context of real estate, it means that the buyer and seller have agreed to the terms of a purchase and sale agreement, but only if certain conditions are met.
In most cases, putting an offer in on a contingent home is an option to consider. Although it doesn't guarantee you'll close on the home, it does mean you could be first in line should the current contract fall through. Putting an offer in on a contingent home is similar to the homebuying process of any active listing.
If a home is listed as pending, all contingencies have been met and the sale is further down the closing path, with most of the paperwork in place — but the transaction has not yet been completed. You are more likely to be successful making an offer on a contingent home than a pending one.
This status allows a seller to accept an offer from a new buyer. If this happens, the seller essentially “kicks out” the first buyer. That may be good for the seller and the new potential buyer, but it's bad news for the buyer with the contingent offer.
The contingent period usually lasts anywhere from 30 to 60 days. If you have a mortgage contingency, the buyer's due date is usually about a week before closing. Overall, a home stays in contingent status for the specified period or until the contingencies are met and the buyer closes on their new house.
As a general term, contingent means “upon certain conditions being met.” In the context of real estate, it means that the buyer and seller have agreed to the terms of a purchase and sale agreement, but only if certain conditions are met.
But there are risks involved, especially for sellers. Because contingent offers require some other event to take place – such as an appraisal of a home for a certain amount or a home inspector giving a residence a passing grade – they can fall through. Fortunately, most contingent offers do reach the closing table.
A contingent offer on a house is an offer with a protective clause on behalf of the buyer. The contingency communicates that if the clause isn't met, the buyer has the right to back out of the purchase. This practice protects the buyer from: Losing earnest money.
Making a contingent offer protects your interests in case unexpected issues mean you no longer can or want to buy the home. A contingent offer includes "walk-away" clauses, or "contingencies," that let you get out of the deal and retrieve your earnest money deposit if certain conditions aren't met.
Pros: Accepting a contingent offer means you don't have to take your home off the market quite yet, since the conditions of the deal haven't been met. If the buyer backs out of the deal, you can sell without having to re-list. In certain cases, some buyers may be willing to pay extra to have their contingent offer met.
Bottom Line Up Front. Homes under contract have an accepted offer, but there's still time to put in a competing one. Contingent home sales are on hold, but only for as long as it takes to meet stipulations. Pending homes are on their way to a final sale, barring any extraordinary circ*mstances.
If the buyer doesn't take the necessary steps to ensure the contingencies are met, the contract could fall through and they could lose the home. This also means that sellers will have to put the home back on the market — something that no one wants to happen!
A home sale contingency gives buyers the time they need to sell and close before committing to a new home. Buyers can avoid owning two homes and holding two mortgages at one time while waiting for their own home to sell.
A contingency is a potential occurrence of a negative event in the future, such as an economic recession, natural disaster, fraudulent activity, terrorist attack, or a pandemic.
Before you start to panic, know that the percentage of offers that don't close due to contingencies is pretty low. A recent study done by the National Association of REALTORS® (NAR) found that in July 2021, 5% of all purchase agreements over the past 3 months were terminated before they could reach closing.
If the seller gets a better offer, either more money or fewer contingencies, they're allowed to “bump” the first buyer. They do this by canceling their contract if that first buyer doesn't match the new offer.
A home sale contingency can be risky to sellers because there is no guarantee that the home will sell. Even if the contract allows the seller to continue to market the property and accept offers, the house may be listed “under contract,” making it less attractive to other potential buyers.
Many real estate contracts include contingencies, which allow either party in the real estate transaction to walk away if certain conditions aren't met, such as qualifying for financing or receiving a positive inspection. But contingencies are usually there for the buyer, not the seller.
Introduction: My name is Nathanael Baumbach, I am a fantastic, nice, victorious, brave, healthy, cute, glorious person who loves writing and wants to share my knowledge and understanding with you.
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