Contingencies; What are they?
As a home buyer, you will eventually find a home that is the "one" and you'll want to make an offer.
This is a very important document that you will encounter during the home buying process. Therefore, you need to understand everything that goes into it, and that includes contingencies....
Inspection Contingencies
Home inspections are the most common contingency type. When purchasing a new home, inspections are intended to help the buyer get all the details of the condition of the home. A home inspector will go through the interior and exterior of the home and perform a general examination of the home and the systems within the property (plumbing, electrical, etc.).
In some instances, home inspections can lead to other necessary, more specific inspections. These could include termites, mold and asbestos, among others. These also fall under the home inspection contingency.
Once all of the inspections are completed, that's when the actual contingency comes into play. Buyers will receive reports of the inspection findings - 1 for each type of inspection performed. Upon reviewing the findings, buyers have the opportunity to negotiate with the sellers for any necessary repairs. If an agreeable term cannot be met, this contingency allows buyers to walk away from the purchase of the home.
Finance Contingencies
When purchasing a home using a mortgage loan, this contingency will come into the picture. This contingency allows buyers to find and secure a mortgage (not a pre-approval) within a given period of time that is agreeable by all parties. Should there be an instance where a buyer cannot obtain financing, this contingency allows that buyer to back out of the purchase.
Should a buyer choose to pay for a home with cash, finance contingencies are not needed.
Appraisal Contingencies
An appraisal contingency coincides directly with a financing contingency. An appraisal is conducted to determine the fair market value of the home to ensure that the sale price is accurate. Should an appraisal come back at a lesser market value, the mortgage loan will not cover the balance between the sale price and market price. This contingency protects buyers so that they can walk away from the purchase if they are not able to re-negotiate or find another way to finance that balance.
Home Sale Contingency
A home sale contingency is just that. It allows the buyers of a new home the additional time to procure a ready, able and willing buyer for their current home. Within that time frame, if a buyer is unable to find a buyer for their home, they are able to walk away from the purchase of the new home. This contingency is often not well-liked by sellers and can potentially weaken a buyer's offer.