You finally found a property that you are interested in buying, and you can already imagine yourself living there. While this is exhilarating, it’s important to temper your excitement a bit before you make a mistake. It’s often a good idea to add some contingencies to your offer to purchase the home.
A contingency just means that the purchase of the home will only happen if certain conditions are met. If those contingencies are not met, either the buyer or the seller can back out of the offer without issue. Contingencies are a common part of real estate transactions. Below are some of the ones that are used most often and that you should consider. Many standard home purchase contracts will have contingencies built into them.
Appraisal Contingency
When you are trying to get a loan, lenders will likely want to have an appraiser examine the home first. They want to check the market value of the property to see if the appraised value matches what you are paying. If the value from the appraiser is too low, lenders may not be willing to provide you with a mortgage. Using an appraisal contingency ensures that you can back out of the sale if the appraiser determines the fair market value is lower than what you are paying for the property.
Home Inspection Contingency
With this contingency, buyers can hire an inspector to come and look at the property for issues that may not have been disclosed properly by the seller. After the inspection report is provided, the buyer and the seller may need to renegotiate. The buyer can also back out of the purchase if the inspection reveals issues.
Financing Contingency
This type of contingency is used to cover the ability of the buyers to get a mortgage or to find other methods of buying the home. Even when buyers get prequalified, it doesn’t always mean they can get a mortgage for the property. If the appraisal shows that the property is being sold at above the market value, as discussed above, the lender might not want to provide financing. This contingency allows the buyer to back out if they are not able to get a mortgage.
You can learn more about these and other potential contingencies when you speak with your real estate agent. These are some of the most important that you might want to put into your offer to purchase.