Contingency offers are common in real estate transactions, most often as protection for buyers in certain situations. With a contingency, finalizing the transaction depends on the fulfillment of other conditions or other events taking place. A contingency offer can certainly offer you protection as a buyer, but it can also create problems. Read on to find out what Newark home buyers need to know about contingency offers.
What Are Contingency Offers?
“They simply mean the sale and purchase of a house will only happen if certain conditions are met. The offer is made and accepted, but either party can bow out if those conditions aren’t satisfied. Most people think of contingencies as being tied to financial concerns. A buyer can make an offer, but it is contingent upon them obtaining a mortgage.”
There are, however, other types of common contingencies, and they are common. In fact, a 2018 NAR survey found that 76% of agents who closed a deal in January of that year “reported that the closed sale had a buyer contingency.”
It’s also important to know that a “contingency isn’t just a conditional offer by the buyer. It also places some of the burdens onto the seller. The seller must be able to meet certain conditions as well, such as disclosing previous damage or repairs.”
To find out more about contingencies and how they work, contact a Newark agent at (848) 299-4847.
Common Contingency Offers
Now, let’s take a look at the most common types of contingency offers among Newark home buyers . . .
Close to half of all home sales include a financing contingency. With this type of contingency, the buyer makes an offer, and the seller accepts, but the sale is still contingent on the buyer’s getting financing to buy the home. If the buyer can’t get financing, this contingency allows her to back out of the deal, cancel the offer, and get her earnest money back.
The problem for buyers with financing contingency offers is that the financing process can take a good long while and a home sale can take more than 60 days. “Buyers can find themselves at the end of their option period, believing the new home is theirs, [only to] be notified there was a problem with their financing.”
The best way for buyers to avoid this situation is by getting pre-approved for a mortgage before beginning the home search. You can also contact a Newark agent at (848) 299-4847 for more tips on financing contingencies.
Also common among contingency offers is the home sale contingency. It’s so common because many buyers must sell their current home before they can afford to buy another one. It does indeed provide some financial protection for buyers, but there can still be problems, specifically the weakness of the offer.
“Many sellers try to avoid this type of contingency because it forces them to place their home sale as ‘pending,’ which can deter other buyers from making an offer. It also means delay. They can’t sell their home until their buyer sells their home. Complications are common and from a seller’s point of view, home sale-contingent offers are the weakest on the table.”
The most common of all contingencies, the home inspection contingency is one in which “the buyer makes their offer with the stipulation that it is only valid if the independent inspection report 1) doesn’t reveal anything the buyer wasn’t already aware of, or 2) the inspector discovers problems the buyer isn’t willing to negotiate or repair.”
But an inspection contingency isn’t without drawbacks chiefly because almost every home has some problems. “Because anyone who has ever purchased or sold a house knows inspections uncover all kinds of things, the inspection process is generally quite stressful for both buyers and sellers. The buyer obviously has their heart set on buying the home and would be disappointed if their inspection-contingent offer was rejected or warranted a rescinded offer. This would require a new home search. . . . Everything rides on the inspector – what he or she will find, how it will be reported, and whether any issues are big enough to halt the sale of the home.”
“In an appraisal contingency, the buyer makes their offer, the seller accepts it, but the deal is contingent upon the lender appraisal. If the buyer is seeking financing from a lender, the lender will require an appraisal of the property to ensure the asking price is in line with the actual assessed value of the home.”
If the appraisal comes in too low, then the deal is off. As a buyer, your options then are to negotiate a lower price or try to get a bigger loan.
It sometimes happens that the title company will find problems with a home’s title, that is, the record of ownership. The purpose of this contingency then is to give the buyer an out if there are in fact title issues.
“In some circumstances, the title company will discover problems with the property’s record of ownership. It may be that there is an unsettled lien from a previous owner or judgment on the property if there was a divorce or unpaid taxes, for instance. In these situations, the ownership issues can cause a buyer to back out of a contract without penalty if the attorneys or title company cannot resolve them. The good news is, most title issues can be resolved easily, but as a home buyer, you want to be sure you’re protected by making your offer contingent upon a clean title.”
Get Your Contingency Offers Right
As we mentioned, while contingencies protect you as a buyer, contingency offers are also weaker than non-contingent offers. And that means that a seller may accept an offer without contingencies instead of your offer with contingencies. That’s why contingencies must be carefully considered and even more carefully crafted. And that’s where your Newark agent comes in – to guide you through the process and help make your offer attractive. If, then, you’re a Newark home buyer considering contingency offers, don’t hesitate to contact us today at (848) 299-4847.