In a perfect world as a seller, you’d list your home on the market and get a full-price, cash offer the next day. As a buyer in a perfect world, you’d browse online for home listings in your area, find the home of your dreams, make an offer that gets accepted and move in within 30 days. In reality, these two scenarios almost never happen. In fact, home sale transactions are often based on contingencies.
A contingency is basically a term of agreement that is incorporated into an offer to purchase a home. This type of agreement might give the buyer wiggle room to back out of the deal if a particular thing happens or doesn’t happen. (I.e., The appraised price of the home is lower than the offer or a lender does not approve the mortgage loan.) Understanding the various types of contingencies can help you navigate the home sale/purchase process, no matter which side of the deal you happen to be on.
Contingencies that involve home inspections
Current data suggests that 80% or more of home buyers include home inspection contingencies in their purchase offers. As a buyer, you are tasked with choosing a certified home inspector and scheduling the inspection as well as paying for it. With this type of contingency, you’d typically be stating that you’re willing to buy a particular house unless the inspector discovers major problems that the seller is not willing to resolve or negotiate to resolve.
Contingency to sell your current home
The average home buyer doesn’t want to get stuck carrying two mortgages at once. This is where a “home sale contingency” might come into play. If you want to buy a house but still have a house to sell, you can incorporate terms of agreement that state that you will purchase a home if you sell your own home within a certain amount of time. If your house doesn’t sell on time, you can back out of your purchase offer.
Your purchase offer might be contingent on the appraisal
Another common type of contingency in the home purchase process is one that is based on a certified appraisal of the home. This type of agreement is especially helpful for a buyer who has placed monies in earnest on a home. If you offer to buy a house contingent on the appraisal, you can rescind your offer if the appraisal comes in lower than the purchase price.
Obtaining mortgage loan approval in order to buy a house
Always remember that “pre-approval” of a mortgage loan does not constitute “final approval.” A mortgage contingency enables you to back out of an offer if you do not secure the financing you need within a certain time frame. With this contingency, you would also be able to recoup earnest money. The seller would be free to re-list the house on the market if your financing falls through by the agreed-upon deadline.
Should you accept a contingency as a seller?
Every home sale/purchase transaction is unique. To determine if contingencies are worth it to you as a seller, you must be able to review the “entire package” and weigh the benefits versus potential downsides. It’s helpful to seek guidance from an experienced listing agent whose priority is to protect his or her client’s best interests.