This winter season, the real estate market has taken a complete 180. It normally slows during the holidays but this is beyond a seasonal slowdown. It’s nothing like it was six months ago. Nationwide realtors are speaking a new language via their blogs. What’s the hot topic these days? Contingencies.
Property Condition Contingencies
For the past several years, we’ve excluded contingencies to give buyers an advantage in getting a house. Conversely, these days, we’re bringing them back. As a matter of fact, the large number of layoffs is just one good reason for buyers to have property contingencies in their home purchase.
Real Estate Contingencies: What are they and when to use one
Kevin Vitali, realtor in Essex and Northern Middlesex Counties, Massachusetts, explains what contingencies are and when to use them. They are most commonly used as protection for the buyer. They may protect a home buyer from inferior home conditions and the ability to obtain a home loan based on certain favorable conditions.
However, home sellers can invoke contingencies in certain circumstances as well. One example involves allowing the seller a limited time to find a suitable replacement home.
Common Contingencies in Real Estate
Luke Skar with Madison Mortgage Guys, discusses the contingencies you’re likely to see most often in purchase agreements. Luke shares details on the most important which are inspection, financing, and appraisal.
Some of the not-so-familiar are the title, homeowner association, and home insurance contingencies. With an increase of fires in California and hurricanes in the southeast of the United States, it’s become more difficult – and more expensive – to obtain insurance.
He reminds us that they have time limits and have to be removed on a schedule specified in the contract.
Home Inspection Contingency: Examples, Clauses, and Addendums Explained
Massachusetts realtor Bill Gassett continues the education with this article: Home Inspection Contingency: Examples, Clauses, and Addendums Explained.
Certainly, the home inspection contingency is the most common of the several most used by home buyers. Bill explains in depth what an inspection contingency is, and how to include it in an offer.
In some areas, the home inspection is provided by the home seller in advance of an offer. However, if it’s not, as a home buyer, it’s not the time to save money. Home inspections are well worth their expense. They’ll no doubt save one much more than they cost.
That contingency allows the buyer to investigate the condition of the property. It’s a general all-over inspection that covers the house from the roof to the foundation. Homeownership is expensive enough without having a clear understanding of the home’s condition.
Appraisal Contingency | 5 Important Facts to Know
Sharon Paxson, Newport Beach realtor, describes the appraisal contingency. Depending on the financing involved, the appraisal contingency may be another must-have. The bank is a major financial contributor to the home purchase – usually the largest contributor. In order to protect their investment, they require the property appraise for at least the purchase price. The lower the downpayment, the higher the risk for the bank. The appraisal becomes more important in that case.
If the appraisal comes in short of the purchase price, the buyer will have to increase their downpayment. It’s all good if they’re financially prepared and want to do that. However, they may not be in a position to increase their downpayment.
The appraisal contingency allows the parties to continue the negotiation conversation if needed. There are several options if the appraisal is short. They include the buyer paying more, the seller reducing the price, or a combination of the two.
Can A Buyer Walk Away From A Contract To Purchase A Home?
Paul Sian, Cincinnati and Northern Kentucky realtor, continues this topic. He brings up the worst-case scenario: the buyer backing out of the purchase altogether. This is certainly a possibility with contingencies still in place. That’s why it was so beneficial to leave them out in multiple offer situations. It gave home sellers the security of knowing that the transaction would go through no matter the circumstances of the inspection and appraisal contingencies.
Paul also explains the ramifications of a buyer canceling a contract without contingencies. And what they’re facing if they do.
These are must-read articles for anyone getting into the market during these fluctuating times.