Deciding to purchase a house is a big commitment. The property that they purchase will become their home, which means that everything from the property’s amenities and location to its age and condition can influence what the home is worth for the buyer.
No one property is the best or only option for people, especially when the market is competitive. Buyers have to accept that their offers may not be successful and should seek to protect themselves from unexpected changes when committing legally to an offer and putting their earnest money at risk.
Contingencies are one of the most important ways that those buying real estate can protect themselves by giving them the option to cancel the transaction and to renegotiate their position when the details of the situation change. What contingencies do many buyers choose to include in their offers?
Lenders typically require appraisals to ensure they do not over-invest in a property. If the appraiser puts a valuation on the home that is lower than the purchase price, an appraisal contingency could allow the buyer to cancel the transaction without penalty.
A property may seem perfect, but it could have latent defects that aren’t obvious either to an individual buyer or their real estate agent. It may only be when an inspector tours the property that serious issues about the foundation or the plumbing come to light. An inspection contingency allows a buyer to renegotiate an offer or cancel a closing if there are defects discovered during an inspection.
Sometimes, a person in the middle of a real estate transaction loses their job or faces some other significant personal challenge that alters their eligibility for a mortgage. It could also be issues with the property that make a mortgage unattainable. A financing contingency allows a buyer to cancel the closing without penalty if they can’t get a mortgage company to finance the purchase.
A home sale contingency
Someone buying a new home to sell their existing home or may end up responsible for two mortgages simultaneously. Including a contingency that allows a buyer to cancel if they cannot sell their home in a certain number of weeks after the seller accepts their offer and be a way to protect those who do not want to overextend themselves when looking to buy a new home.
Having the right terms included in an offer may help a buyer avoid the loss of their earnest money because a real estate transaction falls apart.