Home Sales Fundamentals: What Every Homeowner Should Know

Confused By Contingencies? Helpful Info Every Home Buyer Should Know

Like all legal and binding contracts, real estate purchase contracts can be confusing, especially the sections known as contingencies. Defined as provisions with the power to break the binding nature of a contract, contingencies are built-in safeguards to protect the interest of one or both parties when certain agreed-upon conditions are not met. If you are in the process of buying a home or will be doing so soon, the following  information can help you understand and use contingencies to your benefit. 

The Loan Contingency

Also called a financing or mortgage approval contingency, the loan contingency is crucial because it gives the buyer a legal way to leave the contract if they are unable to be approved for a loan within the perimeters spelled out in the contract. These parameters typically include: 

  • ​a time frame for getting loan approval,
  • the loan amount and type, 
  • and the interest rate and terms of the loan.

​Buyers who are denied a loan, as specified in their purchase contract's loan contingency clause, are able to recoup their earnest money and avoid potential legal issues. 

The Inspection Contingency

Sometimes also called a due diligence contingency, the inspection contingency is extremely important because it can help protect buyers from purchasing a home that will be unsafe to live in or expensive to repair. Inspection contingency clauses are worded to give the buyer a certain number of days to inspect some or all portions of the home's interior or exterior. 

Once the inspections are completed, reports are provided to the buyer, who can then do one of four things: 

  • ​accept the findings in the report and continue with the purchase,
  • use the findings of the report to break the contract and have the earnest money deposit refunded,
  • ask the seller to make or pay for some or all of the repair or condition issues noted on the inspection reports,
  • or attempt to negotiate additional time to do more in-depth inspections or assessments. 

​It is important for buyers to understand that any inspections desired are their responsibility to pay for and obtain, and that sellers do not have to agree to make or pay for any repairs or condition issues that may be found.

The Appraisal Contingency

This contingency is important because it helps assure buyers that the minimum value of the home is at least as much as the contract sales price. Buyers can, however, continue to move forward to purchase a home that does not appraise for the amount of the purchase, as long as they have cash to pay for the difference between the amount of their mortgage and the actual appraised value of the home.  

To learn more about purchase contract contingencies and how to use them to protect your interests, buyers should take time to discuss each one with their real estate agent before signing any purchase offer. 

About Me

Home Sales Fundamentals: What Every Homeowner Should Know

When I decided to sell my first house, I had no idea how complex the process was going to be. From meeting with several real estate agents to completing the listing and scheduling open houses, it was more demanding than I thought. When it came time to entertain offers, I was at a loss for how to evaluate each one objectively and I made some mistakes that I wish I'd known better about. Now that we've left the closing table, I wanted to create this site to help others who may be new to listing a home. Read through what I've learned so that you can be better prepared for the process yourself.



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