Understanding and Applying Home Purchase Contingencies
by Ty Wilde
on Tuesday, July 2nd, 2019 at 10:30am.
There are a few particular words or terms you might find within a home purchase process, and one such word is “contingency.” A contingency, generally put into place to protect the buyer, refers to any provision placed in a standard purchase contract – more than one contingency can be added to a contract, and if contingencies that are agreed upon are not met, the buyer has the right to back out of the sale with no fee or penalty.
At Eagle Mountain Living, we’re here to help with contingencies and any other details involved when you purchase any of our real estate listings. While contingencies are a valuable tool for buyers, they can also have negative results if you push things too far or are competing with other buyers who do not have as many contingencies as you. With this in mind, let’s look at a few important areas involved in contingencies, plus some contingency examples and when you should consider them.
Role of the Market
Firstly, it’s vital to understand whether you’re in a buyer’s or seller’s market. This is due to basic supply-and-demand: If you’re in a seller’s market, meaning there’s more demand out there for properties than there are actual properties in that price range for sale, you’d be wise to limit your contingencies only to major needs – too many particular contingencies will cause the seller to simply choose a different buyer with fewer needs.
In a buyer’s market, on the other hand, you can be a bit more liberal with your contingencies. If you’re the only potential buyer for a given property, for instance, the seller is much more likely to accept your contingencies.
Importance of Dates
Another important factor: Possible deadlines involving contingencies. Contingencies involve required actions from both the seller and buyer in many situations, and falling behind on any of your responsibilities may void your contract and cancel the purchase. Ensure you know all related due dates and are on top of them.
Here are several examples of common (or uncommon) contingencies, which your buyer’s rep can assist you with in terms of which to press for and which to avoid:
Home inspection: This is a common and generally accepted contingency that should almost always be present.
Financing approval: To ensure your mortgage financing reaches final approval and isn’t held up by the appraisal, home inspection or any other cause.
Attorney review: Both buyers and sellers may have a certain number of days for their attorneys to review the contract and closing documents.
HOA documents: If you’re buying a property governed by a homeowners association, you can request documents in advance or make this a contingency item.
Early occupancy: Also sometimes including early furniture move-in, this is a contingency sometimes added for those with crucial moving deadlines.
Home warranty: In some cases, buyers can make a sale contingent upon their ability to obtain a home warranty, many of which require inspection.
Current home sale: In other situations, buyers will request a contingency that allows them to delay closing until they’ve found a buyer for their previous home. In a seller’s market, this is a fairly large request that we’d generally recommend you avoid, as other buyers may not require it.
For more on home purchasing contingencies, or to learn about any of our homes for sale or real estate agent services, speak to the staff at Eagle Mountain Living today.