Contingencies: Which Should I Include In My Offer?
When you have found a home that you want, it is time to make an offer. Part of the offer can include something called contingencies. Find out what contingencies are and which ones you should include in your contract.
What Are Contingencies?
A contingency is just a fancy word for a condition that has to happen in order for the contract to go to closing. It is like a safety valve that lets the buyer make sure that specific things are true before signing on the dotted line at closing. For instance, when looking at a home during a showing, a buyer wouldn’t know if the home had termites. So, a contingency could be that the house must pass the termite inspection to move to closing.
Contingencies During Escrow
The time between signing a contract and the closing is called escrow. During this time, the buyer will be allowed to have the home inspected and appraised. The buyer and seller will work together to resolve any contingencies the contract has.
As an example, if a contingency is that the home appraise for a certain value, then an appraiser will come to the home and provide a value on the home. If it meets or exceeds the value on the contract, then the house moves towards closing. If not, then the buyer and seller can renegotiate the contract.
Standard Contingencies
There are many typical contingencies found in a contract to purchase a home. Here are some of the more standard ones you might find:
- Inspection: The buyer must be satisfied with what the inspector found
- Financing: They buyer must be able to get the appropriate financing for the home
- Appraisal: The home must appraise at the purchase price or higher
- Insurance: The buyers can acquire the needed homeowners insurance
- Title: The sellers truly own the home as determined by a title company
- Selling a Current Property: The buyer has to sell their old home before purchasing the new one
In addition to these more typical contingencies, there are others that are put in on a case-by-case basis. These include such things as:
- Buying a New Property: The seller can find a new property to buy
- Termites: An inspection finds the home free from termites
- Lead Paint: An inspection finds the home to be free from lead paint
- Radon: An inspection finds the home to be free from radon
- Mold: An inspection finds the home to be free from mold
- Private Well: Testings shows that the water is potable
- HOA: Pending the buyer’s approval of the HOA covenants
Should You Use Them in Your Contract?
For most sales, the answer is yes, you should have some contingencies in your contract. For most people, this includes the inspection, appraisal, and financing. Keep in mind, however, that the more your require from the seller, the less likely they are to take your offer. Why? Because meeting all of the “what ifs” about a sale can take a lot of time and money. Sellers may look at a contract with a list of contingencies and move on to the next potential buyer.
The point of contingencies is to provide some safety to your purchase. Use those that are needed, but don’t go overboard.
They can also be used as a negotiating tool. If a buyer doesn’t want to make repairs, you can use the contingencies to negotiate a lower selling price on the home.
As a buyer’s agent, we understand the contract process and the needed contingencies for the homes in our area. If you have questions or concerns about contingencies or how they are used in the purchase of a house, feel free to contact us.