Contingencies are common in real estate contracts, but, unfortunately, buyers and sellers often don’t understand them as well as they should. Generally, contingencies protect buyers, but there are important ramifications and implications for sellers too. Read on, then, to find out what [marekt_city] buyers and sellers need to know about real estate contingencies.
What Are Real Estate Contingencies?
Let’s begin with a general definition of real estate contingencies for both Newark buyers and sellers. Contingencies are included in the sales contract (which makes the offer a contingent offer) “to protect the buyer and help both parties avoid an unjust agreement.”
“A contingent offer is made by a prospective home buyer to a seller with conditions attached that must be met before the sale can be completed. If the stated criterion/criteria is/are not met, then the buyer is able to back out of the deal and is usually entitled to a refund of the earnest money.
“An offer on a home and a purchase contract indicates the price that the buyer agrees to pay for a home as well as the conditions under which they agree to purchase it. The contract will include responsibilities for both the buyer and the seller. A buyer’s main duties include getting approved for financing, having the home inspected and appraised, and doing so in a set period of time. The seller’s duties often include an agreement to not accept other offers and to make the home available to inspectors. These responsibilities are laid out in the contingencies.”
The Common Contingencies
In theory, a buyer can make an offer with a contingency on just about anything, but sellers are likely to agree to only the most common (and reasonable) of real estate contingencies. “Sellers do not have to accept every contingency that a buyer puts into a contract, and both parties must agree on all contingencies before signing a contingent offer.”
Be aware that it takes some knowledge of the local market to determine which contingencies to include in the contract. So be sure to consult a Newark agent at (848) 299-4847 to find out the best way to craft a contingent offer. Following are the common contingencies you’ll be working with . . .
Inspection Contingency
This contingency simply says that if the inspector finds problems with the home during the inspection, then the buyer can walk away from the deal with no repercussions.
Appraisal Contingency
“An appraisal contingency affects the financing process. If a home does not appraise for the amount that a buyer has agreed to pay, the buyer can walk away from the deal with their deposit. The appraisal process determines the fair market value of a home, so an appraisal contingency helps buyers avoid overpaying for their homes or ending up upside down in their mortgages.”
Financing Contingency
Also called a mortgage contingency, the financing contingency stipulates that if the buyer can’t secure financing for the purchase, then she can walk away from the deal with her earnest money in hand.
Title Contingency
This is an important one of the common real estate contingencies because it concerns ownership of the property being sold. “The title report documents the home’s history of ownership. A title contingency will stipulate that the purchase of the home not go through unless the title report shows that the home is free and clear of any liens.”
Home Sale Contingency
While not as common as the other real estate contingencies, this contingency can be a life-saver for buyers and quite a burden for sellers.
With a home sale contingency “the purchase of a new home is contingent on the buyer’s ability to sell their current home. It states that if the buyer sells their home by a specific date, they will purchase the new property and the contract will move forward. If they do not, then the contract is terminated.
Sellers are far less likely to accept this contingency than the others on this list. This is because a home sale contingency has a lot of risks and would leave the seller on the market in the case that the buyer does not sell their existing home.”
Contingencies Protect Buyers
In most cases real estate contingencies and designed and serve to protect buyers. The simple fact is that purchasing a home carries a lot of risk with it, and the contingencies can mitigate that risk.
“There could.,” for example, “be structural issues with a property, or the ownership of a property could be disputed. Therefore, buyers need to include contingencies on their offers so that if they find something wrong with a property, the contingency will void the sale contract. Voiding a contract means that the seller can relist their home and the buyer will get their earnest money back. This helps protect buyers who put earnest money down on a home to ensure that they are both entitled to purchase the home if they choose, but not entitled to move forward with the purchase of a home if it is not in their best interest upon further inspection.”
Seller Considerations
Now, Newark sellers have the task of deciding which if any of the proposed real estate contingencies they will accept. And this decision is different in each individual transaction according to the specific facts and circumstances. But here are some guidelines . . .
Sellers, of course, want to get the best price and terms possible, and in order to do that, they’ll usually have to accept certain contingencies. “It’s fairly common to find offers which include a number of standardized contingencies. For example, buyers might want to limit their interest-rate exposure to the prevailing market rate at the time the offer is made. This is good for the buyer and it’s also good for the seller. If you’re a seller, you don’t want to waste precious marketing time with a buyer who cannot qualify for financing.”
But then there are contingency cases that you possibly should turn down. “[A]n offer with no mortgage pre-approval – but a financing contingency, tiny down payment, and low-interest-rate limit – should make you nervous. An offer stating that the inspection must be ‘satisfactory,’ without defining ‘satisfactory’ could be opening up a can of worms you don’t want. Specifics are better than generalities.”
Get Expert Help With Real Estate Contingencies
Contingent offers though standard can be confusingly complex. That’s why most Newark buyers and sellers can benefit from the services of a local agent – to avoid legal problems or opening a can of real estate worms. If you want assistance navigating the tricky ground of real estate contingencies, contact us today at (848) 299-4847.