Home Purchase Offer Conditions
The standard home purchase offer lists several conditions that must be met before the closing will take place, covering issues like financing, inspections, insurance and more. These conditions are called “contingencies.”
How Contingencies Work
You, as well as the seller, will probably ask that a number of these contingencies be added to the written purchase contract.
The contract will build in a certain amount of time (usually several weeks) between the contract signing and final “closing” of the deal. That gives you and the seller a chance to deal with these contingencies.
During this time period, you and the seller will be working hard to meet or remove the various contingencies and will advise the other party of progress being made. If either of you fails to meet or remove a contingency, you can either call off the purchase or renegotiate around the issue.
Types of Contingencies
Some contingencies are quite standard, and both you and the seller would probably be foolish to reject them. In very hot markets, however, desperate buyers have been known to waive this contingency and take the property “as is.”
Other contingencies are less the norm, and become a matter for negotiation. For example, the seller might ask that the deal be made contingent on his or her successfully buying another house. If you need to move quickly, you can reject this contingency, or demand a time limit. If, on the other hand, you can wait, accepting this contingency might provide grounds upon which to request other concessions from the seller, or at least assure that the deal will go forward.
Here are details on some common contingencies found in purchase contracts:
Financing Contingency
The standard home purchase offer will be contingent upon you, the buyer, securing financing with which to buy the house. It will also state a period of time within which you intend to get the financing.
Most contracts will also describe how much of a down payment you plan to make, and what type of financing you’re willing to accept. To protect the seller, however, the standard contract will obligate you to start securing financing within a stated period of time and to make reasonable efforts to complete the process.
Inspection Contingency
Your contract should give you the right to do one or more home inspections by a certain date. It should also specify that you must be satisfied with what the inspections reveal, and should explain your options if you’re not satisfied—that is, if the house needs more basic fixing up than you’re willing to accept.
Most buyers request the right to send in a pest inspector and a general contractor. If the house is old, in poor condition, or in a region known for mudslides, floods, mold, toxic substances or earthquakes, you might also want to do more specialized inspections.
If you’re buying a newly constructed house, you may want to schedule inspections during key phases of construction, plus a final inspection when the house is completed.
Inspection reports will inevitably reveal some problems. Normally, you and the seller will agree on how much the seller will pay or reimburse you for in order to fix these problems. However, a seller who feels you’ve underpaid may say “take it or leave it”—and refuse to pay for any of the repairs. And buyers who’ve gotten buyers’ remorse have been known to claim that a minor repair issue provides grounds to cancel the deal.
Insurance Contingency
Your lender will probably require you to buy homeowner’s insurance. But what if you live in a state where not everyone is able to find coverage? In recent years, many homeowners living in states with a history of household toxic mold, earthquakes or hurricanes, have been surprised to receive a flat out “no” from the insurance carriers. To protect yourself from this possibility, make your contract contingent on your applying, and receiving a commitment in writing, for homeowner’s insurance.
Title Contingency
This contingency has to do with making sure the seller has clear “title” to ownership of the property. There can be “clouds” on the title (due to divorce, contested wills or tax liens by the county government) that call the seller’s right to full ownership into question.
That’s why your contract should include a contingency saying that you must receive and approve a preliminary title report. The title company will research the chain of ownership, and also tell you whether others have any right to use the property.
For more information on contingencies in your home purchase offer, contact leading realtor Linda Lackey of Coldwell Banker Santa Monica at (310) 429-1185.
No Comments