When you find a home that you love, you and your real estate agent can submit an offer, which can include some contingencies.
These are conditions that must be fulfilled for the sale to be completed, which are written into the sale contract. Contingencies can come from you or the seller, and if they are not met, the agreement will be voided. This gives you legal protection in case the other party attempts to back out of the deal without cause. After negotiating with a seller, he or she will consider whether to accept the contingencies contained in your offer. If the terms are mutually beneficial, the offer will go through and the home will be under contract.
There are many conditions that can be listed in the contract. Here are a few that you should try to work into your offer:
- Home inspection: A property could look perfect to the untrained eye but hide some structural or other issues beneath the surface. As a result, you want to include a contingency that says you can have a property inspection conducted. Additionally, this condition can mandate that the seller pays for any needed repairs, and if damages to the home are too extensive, you can back out of the deal.
- Financing: Even after you get a preapproval for a mortgage, there's still a chance that your prospective lender won't grant you enough to purchase the home you're considering. A financing contingency says that you have a certain amount of time to obtain the financing necessary to buy the property. After that period, you're allowed to walk away from the transaction.
- Appraisal: Appraisers are third-party professionals sent by the lender to determine the fair-market value of the home. With a contingency, you're allowed to take your interests elsewhere if the appraised value is less than the sale price.
- Title: As odd as it may sound, there are some sellers who don't own the property they placed on the market. This can be due to a variety of reasons, such as liens on the home. If you purchase one of these homes, you'll be involved in a legal mess, but you can protect yourself with a title contingency that voids the contract if the seller doesn't own the property.
Make sure that you and your real estate agent take ample time to read the contract and its contingencies so that you understand your rights. This will also help you avoid defaulting on the sale.