Buying a home is a very emotional affair. The excitement, pride, and joy of owning a property is beyond compare.
When you have your heart set on a home, it'll feel good! However, you might begin to start viewing the property through rose-tinted glasses, which could lead to cloudy judgement, especially when it comes to the finer details.
While it might feel great to be one step closer to signing the paperwork, this is where the true test of your decision-making skills comes into play.
A surefire way to put a damper on a financial purchase as big as a home, is if you have no contingencies in place. Therefore, it's best to be as logical and rational as possible, when you want to close the deal.
Now, let’s put on our thinking caps to understand what contingencies in real estate are all about, and how having one (or more!) can seamlessly help you on your journey towards owning the home of your dreams.
What Is A Contingency In Real Estate?
Contingencies are basically conditions in an offer, much like clauses in a contract. The condition(s) must be fulfilled to enable the sale to move forwards. It also gives the buyer certain options, if the conditions are not met.
What are some of the contingencies that you, as a homebuyer, would need to keep an eye out for, when looking to purchase a home? Well, below are just some of the more important ones.
Types Of Contingencies In Real Estate
1) Home Inspection Contingency
It is always good practice to conduct a preliminary home inspection before making an offer. However, with so many other things to pay attention to, we might overlook this important detail.
Having a home inspection contingency in place allows you to arrange for a professional to carry out a thorough check, during the closing process.
The professional will provide you with a report on any issues such as plumbing problems, roof leaks, or pest infestations.
You can then use this report to negotiate on the price, or ensure that the seller settles all the problems BEFORE the sale is complete.
2) Financing Contingency
This will state the specific number of days that the homebuyer is given to get their home loan approved. IF they're unable to get approved, they need to either cancel the contract, or request for an extension in writing.
3) Appraisal Contingency
If you are applying for a home loan, a home valuation will be ordered by the bank to determine the value of the home. The price has to be equal to, or greater than, your offer.
If the bank thinks the value of the house is lower than your offer, an appraisal contingency will allow you to renegotiate a new (cheaper!) price with the seller.
4) Title Contingency
This contingency gives you the right to review the property's title report, which is a document that states the history of ownership.
A title contingency helps you verify that the title of the house is clear of any issues, before you actually buy the house. This is a good way to ensure you will not encounter issues like ownership disputes down the road.
What If I Want To Sell My Current House, Before Buying A New One?
You may be looking to sell your existing house, to upgrade your living standards or even to get more cash. But, you also want to avoid being stuck with two home loans under your name, all at the SAME time.
Now, a home sale contingency gives you a specific amount of time to sell your existing home, in order to finance the new one. It also makes for an easier transition to the new house, knowing you have secured it.
Having this clause means that as a buyer, you will be protected in the event your current home doesn’t sell for a long period of time, for whatever reason. You'll be able to walk away from the deal, without any consequences.
Closing Is Everything
Before you sign on the dotted line and the property officially becomes yours, be sure to conduct one last walk-through of the entire property, to ensure everything is in place. Otherwise, go over your contingencies and never be afraid to renegotiate.
Here are two important areas you need to look into, just before you close the deal:
1) Completion Of All Required Repairs
Once the home inspection is complete and repairs done, you could choose to bring along a handyman to double-check the work.
Things like the plumbing or roof repair works are not easily detectable to the untrained eye. It could also be dangerous to inspect it yourself, if you don’t know what you’re doing.
2) Thoroughly Check The Interiors
The easiest way to document these little things from the beginning would be to whip out your smartphone and start recording everything!
Look for things like air-cond units, furniture, and fittings that should be accounted for, as part of the sale. In addition, make sure to take note of little things like cracks, so that you can always bring them up to the seller.
What Happens If A Contingency Is Removed
A seller who tries to talk their way out of any contingency clause is a red flag. Removing these "protections" can lead to a host of issues for the buyer in the long run.
This may include incurring hefty repair costs, or losing their homes to a title dispute. Think of contingencies as an 'only-if' clause.
"Only if it passes my inspections, financing, appraisal and title requirements, will the sale proceed". This helps protect you as a buyer, and safeguard your purchase against any unwanted heartaches.
With contingencies in place, buyers have a safety net for fall back on. They can walk away when something doesn’t seem right, and have their deposit refunded. It might hurt at first, but logically and rationally speaking, it'll be the best course of action!
Make sure you're aware of what are the important features and provisions in a Sale and Purchase Agreement (SPA) before you sign that dotted line! If you'd like a better peace of mind, bring along a professional to help explain everything!