There was a time when people frowned upon the idea of a contingency in an offer to buy a home. That time is long over. Now, almost all potential buyers seek to protect themselves on some level with contingency clauses. It’s just how business is done.
If you’re thinking of buying or selling a home, you need to know how these contingencies work and what they cover. Here are three examples to get you started:
- A home inspection contingency. If the home does not pass the inspection, the buyer is free to walk away from the deal. Some buyers will choose to waive this, though, if they want to get a home that has a lot of offers. It protects the buyer from unseen issues that only come to light later.
- A home appraisal contingency. Mortgage companies may back out of the deal if the home gets a low appraisal. For instance, if someone is approved for $250,000 and makes an offer at their max, but the home only appraises for $175,000, the lender may not want to provide the loan since they can’t recoup their value.
- A mortgage contingency. A low appraisal isn’t the only reason that a buyer may not get their home mortgage. If they get pre-approved and make an offer, this contingency allows them to back away from that offer if they do not get final approval and therefore do not have the money to buy the house.
Certainly, these are not all of the contingencies people use to protect themselves. It’s very important for you and your real estate attorney to go over all of the paperwork carefully and to know exactly how the contracts and agreements are written.