Have you been on the home hunt, and finally found a home you’d like to snag? If yes, then it’s time to get serious about researching new territory: Offer contingencies. Offer contingencies are an excellent safety net for buyers, and protects their interests and earnest money in the event of a purchase agreement cancellation. However, seller’s don’t enjoy any perks with offer contingencies, which is why understanding the contingency types and their necessity to you, and cutting excess contingencies if possible, could be the difference between an accepted offer and a cancellation with no earnest money refund.
Before embarking on this search, you need to decide if you’re interested in a ‘soft’ or ‘hard’ contingency. A soft contingency will automatically expire by a certain date, while a hard offer contingency means that you will need to physically authorize acceptance.
If you opt for a soft contingency, make sure to keep note of any contingency expirations, and it’s not a bad idea to keep track of hard contingency dates as well.
In some areas, there will be a separate contingency for disclosures. However, sellers disclosures (a document disclosing information, issues and repair/improvement history the home) are almost always included in a purchase agreement, so specifying this as a separate contingency isn’t really necessary.
Here are some main separate offer contingencies employed by buyers:
This is one of the most common varieties of offer contingency, and is pretty much expected from sellers. When included in an offer, this contingency affords you the right to employ a professional inspector for the purpose of evaluating the property with full access to the home. The inspection can cover details that may have been skipped in the sellers disclosures (if a seller can reasonably claim that they were unaware of an issue, they will not be penalized for omitting an issue on the disclosures), or give you peace of mind at a stressful time. If the inspection does uncover some sticky spots, you now have negotiating power for repairs and potential counter offers thanks to your inspection offer contingency! Buyers will often ask sellers to agree to repair problems with the home before removing the contingency, or, that the sellers adjust the price of the home accordingly to reflect new repair expenses that could fall on the buyer. Note: You pay for the inspection, however, you will almost always get your earnest money back if you decide to cancel the purchase agreement based on the inspection results! Check out this article for more information on inspection offer contingencies!
Financing Contingency Addendum
If you are not paying cash for your future home, you’ll most likely want to include a financing addendum. This gives you leverage in the event of a low appraisal, issues with title clearance, or major financial setbacks, all of which can cause your mortgage provider to cancel your loan altogether. If an appraiser decides the home value is significantly lower than the amount agreed upon in the purchase agreement, you can still request a 2nd appraisal (if the price aligns with the comparative market analysis) or try to negotiate with the seller to agree on a price within the appraisal recommendations.
Sale of Buyers Property Contingency
This contingency is usually considered a significant deterrent to sellers. The sale of buyers property offer contingency stipulates that the sale can only progress once the buyer’s property has sold. While this can be a major factor in your ability to use processed to close on the new home, it’s best to avoid when possible, especially if the market is competitive. Sellers want the path from showing to closing to be as quick and smooth as possible, and this contingency adds another factor of uncertainty to their listing.
Offer contingencies are significant sights on the home buying journey, and for more information to add to your field guide, contact our experts at The Antonov Group today.