When submitting an offer to purchase a home, many buyers are, understandably, excited and nervous. When entering into a contract as a buyer, it’s important to be aware of and understand the terms of the contract and your obligations. Most real estate contracts contain certain contingency provisions or clauses that allow you, as a buyer, to terminate the contract if a particular contingency is not met and get your earnest money back. When you submit your offer, you will need to decide which contingencies to include.
Here are the most common real estate contingencies.
If you will need a loan to purchase property, you will want to include the mortgage contingency provision. This states that you will be getting a loan for a certain percentage of the purchase price, what the maximum interest rate you are obligated to get will be, and what your loan type and duration is (ie: fixed vs. variable and 15 year vs. 30 year). Including this provision allows you, as the buyer, to get out of a contract if you are not able to obtain final loan approval by the date specified in the contract. This means that you will not be stuck purchasing a property that you cannot afford and will not be deemed to have breached the contract if you cannot get final loan approval.
Almost every buyer is given time to complete an inspection of the property. This allows you, as a buyer, to determine if there are any repairs that need to be made or whether the property’s condition is unacceptable to purchase. If you complete the inspection and determine that there are repairs you would like made, you can request that the seller complete these repairs. If the seller disagrees with completing any or all repairs, you can terminate the contract and get your earnest money back. Likewise, if you find the property unacceptable after the inspection, you can terminate the contract.
If you are getting a loan, your lender will perform an appraisal of the property. Your lender wants to ensure you are not overpaying for the property and they are not providing a loan which is more than what the property is actually worth. By including the appraisal contingency, you are allowing yourself to terminate the contract if the appraised value is lower than the sale price of the property. Often, the seller will be given the option of lowering the sale price to the appraised value and, if that happens, the transaction can still move forward. However, if the seller is unwilling to reduce the sale price to the appraised value and no agreement can be reached, this does allow you to terminate the contract as the buyer and receive a refund of your earnest money.
Keep in mind that there are deadlines on all contingencies. It is important to work with an experienced realtor and real estate attorney to help guide you through the process of home buying. For a consultation on your real estate needs, contact our offices to schedule an appointment.