5 Contingencies EVERY Buyer Should Put in Their Offer

You found your next home!! Congrats!! Just as the feeling of "FINALLY" hits you, it is washed away with the "just getting started" feeling. Time to make your offer! We have written in a previous blog on how to make the winning offer during a seller's market, we suggest checking that out, but today we are going over, from the buyer's standpoint, which contingencies you should NEVER leave out!

Before we get started, a definition: a contingency, from a real estate perspective is a clause in a purchase agreement that specifies an action or requirement that must be met before the contract becomes legally binding. They must be mutually agreed upon beforehand. Here are 5 you MUST consider!

1. The Appraisal Contingency - This protects lenders more than homebuyers and it is almost always required by your lender. If you are a cash buyer, you do not have to worry about this but you should definitely worry about this. Essentially this contingency is affirming that the property is worth what you are paying for it. Should you default, the bank wants to know it can recoup its money. It can also create a sense of safety knowing that if you have to sell it, YOU can recoup and if it appraises higher, in theory, you should have instant equity. The key here is you can back out or renegotiate IF the home does NOT appraise for the sales price. 

2. Financing Contingency - This contingency allows you to back out within a certain amount of time should you NOT be able to secure financing, usually 30 days. This protects BOTH the bank and the buyer by allowing the bank the time to verify the buyer can actually afford the house and allows you to potentially get out of an offer you should not have made in the first place!

3. Home Inspection Contingency - This is generally the option period. It varies based on each purchase agreement. The buyer will have a certain amount of time to order an inspection. ALWAYS ORDER AN INSPECTION!! The inspector looks for the obvious, but also the not so obvious and reports back to the buyer. The buyer at that point can negotiate repairs to be included in the contract, make a different offer without the repairs, or just pull out entirely. This contingency can protect you from being forced to pour tons of money into your brand new investment!

4. Clear Title Contingency - In every real estate transaction, the title company runs a title search to ensure there are no liens or outstanding judgements against the property. If either of these are found, the buyer can require the seller to settle these liens or judgements before the purchase of the property. If they are not settled before closing, the buyer can walk away, all money in hand!

5. Home Sale Contingency - This does not apply to everyone, which is why we put it at #5. It is common for buyers to need the equity from their current home in order to pay for their new one. Even if the funds are available for the down payment and closing costs, not every buyer can afford two mortgages concurrently. This gives the buyers the option to back out if they cannot sell by a certain date. Be aware, this also gives the sellers some leverage too. While they will take it off of "Active" on the MLS, they can still accept a backup offer and, depending on the wording of the contract, accept a backup offer and enact a clause enabling them to potentially sell to someone else. Ask your real estate professional for further clarification on this!!

In Conclusion...

Compromise is part of any real estate deal, however, you should not compromise your life and potentially set yourself up for road blocks. Consider adding any, or all, of these contingencies to make sure that your offer is as protected as it can be!!!