Congratulations! You’ve made an offer and are this close to buying a new house!
There’s just one thing—your purchase agreement includes a contingency. So what does that mean?
What’s a Purchase Agreement with Contingency?
A purchase agreement with contingency isn’t bad. In fact, it’s to your benefit as a buyer. When a buyer makes an offer on a home and the seller accepts, the buyer might stipulate that the purchase agreement is only binding if it meets certain conditions. Generally, this is to protect the buyer in the agreement from losing money if something goes wrong.
Buying and selling a home can be very stressful. Contingencies alleviate some of this stress by stating certain things must happen before moving forward with the purchase. If not, the buyer can walk away.
A contingency real estate contract is a binding, legal agreement that says particular conditions must be met before the home sale is approved.
Common Agreement Contingencies
One of the most common contingencies with a purchase agreement is that the offer goes through when the buyer secures a mortgage. If the buyer cannot finance the sale, they can walk away from the purchase. That’s good for you, the buyer.
Here are some other common contingencies:
- Inspections: There are many inspections involved when buying a home to ensure that the interior and exterior are in good shape. A home inspection examines the full condition of the home. Other inspections will check for mold or look at the condition of a chimney. You might add an inspection contingency addendum that the home sale depends on the reports from these inspections. If the inspection uncovers problems that are too extensive, the buyer can walk away from the sale.
- Appraisal: A buyer might state the home sale is contingent on the home appraisal coming in at a certain amount. The appraisal impacts financing. If an appraisal comes in too low, the buyer might not secure the mortgage they expected. The contingency will allow the buyer to walk away from the sale if the appraisal comes in lower than anticipated and it impacts their financing.
- Home Sale: If you are selling your home and buying a new one, this might be a contingency needed for your purchase agreement. Straddling two mortgages is a scary idea. A buyer can place a contingency on the sale that states they will only purchase the home if they can sell their current home in a particular time frame. This is great for the buyer, but less attractive for the seller.
- Title: The title of a home shows who owns the house. When selling a home, the title should come back clean with no liens, meaning there is no question who legally has ownership. Sometimes, though, the title comes into question. A title contingency allows the buyer to get out of the purchase agreement if the title report gets messy and there is a question about legal ownership of the home.
In all of the above cases, there also is room for the buyer to negotiate. For example, if an inspection report reveals more repairs than you expected, you can request that the seller pay all or part of the cost to fix these issues, then continue with the sale. Or, if an appraisal comes in lower than anticipated, a buyer can speak to the seller about adjusting the price of the home.
Making Contingencies Work for you
Some contingencies will benefit you more than others. And some contingencies are better received by the buyer than others. How do you determine what makes the most sense in your situation?
Contact a real estate agent at Denise Ramey Real Estate. Our agents will walk you through the steps of a purchase agreement with contingencies, explaining what will benefit you most.