Making an offer on a home can stir up SO many emotions. Excitement, anxiety, fear, joy, sadness… add to that the stress of trying to decode a purchase and sale contract, and you can quickly get the feeling of being in over your head!
Here are 3 of the most common contract contingencies that you may run into during the buying and/or selling of your home:
01. Inspection– Due diligence is the first hurdle in a contract. It’s usually the first few days where is buyer does their inspection and negotiate repairs.
What this means for the Buyer: Buyers have an agreed upon period of time to inspect, request repairs, and negotiate with the seller. If the seller refuses to make repairs and the buyers do not feel comfortable moving forward without them, they may terminate the contract and, in most cases, keep your earnest money.
What this means for the Seller: Buyers have the right to access and inspect your home during this period. If the buyer requests repairs you can agree to do all, some, or none of those repairs. If the two parties can not come to an agreement on those repairs, Buyer can terminate the contract and, in most cases, take their earnest money.
02. Appraisal– Once you’re past your due diligence period an appraisal will be scheduled by your lender. If the value comes back under contract price you have the chance to negotiate down to the appraised value or terminate with no penalty.
What this means for the Buyer: The appraised value is the most the lender can finance the home for. If it comes in under the contract price, buyer can ask the seller to lower the price. If they say no, you can pay the difference at closing or walk away with your earnest money.
What this means for the Seller: If the appraisal comes in under the contract price and the buyer is not willing to pay the difference at closing, you may find your home back on the market. Decide if reducing that sales price makes more sense than trying to find a new buyer that may have the same issue.
If the appraisal comes in under the contract price and the buyer is not willing to pay the difference at closing, you may find your home back on the market
03. Financing– This is usually the last hurdle in a real estate transaction. This clause indicates that the sale is contingent on the buyer obtaining financing. If the buyer can not obtain financing, they will receive a loan denial letter from their lender, and may terminate the contract.
What this means for the Buyer: This contingency protects the buyer while they are in the process of trying to obtain their loan. If they do not have a pre approval, or their financial situation changes, their earnest money will still be protected if this contingency is still in place.
What this means for the Seller: It could take the Buyer weeks to obtain final financing approval. While this is happening, the seller agrees to take the home off the market. If they can not obtain financing, your home will return to market. It’s a smart idea to ask the Buyer to provide a pre approval letter before going binding on a contract.
Deciding what contingencies to include or not include in your purchase contract is a big call. Talk to your real estate agent about what makes since for you as a Buyer or as a Seller. Interested in learning more about the home buying process? Schedule a Buyer Meeting here! Or start your online home search here!