Let’s Talk Contingencies
When selling a home, you may want to accept any well-priced offer, but sometimes there are factors that are more important than the price, such as the terms. The same goes for when you’re looking to purchase a home, you may want added terms to protect yourself in the agreement of sale. For this reason, most home sales are accompanied by contingencies.
Contingencies are protections put in place in an agreement that must be satisfied in order to move forward with the sale. As a buyer or seller, you need to pay close attention to the type and specifics of a contingency. Your DFT real estate agent will guide you and explain which contingencies are normal and which are unacceptable. Here we break down the two main types of contingencies so you know what to expect.
1. Mortgage Contingency
Most buyers need a loan to purchase their next home. This means that they will need to acquire a mortgage with a bank or reputable mortgage company. If the buyer(s) cannot get a mortgage with terms written in the agreement, then the buyer(s) will not be able to purchase the home. Therefore, the sale will terminate and deposit monies will be returned. As a seller, this is the reason why you want the Buyer’s Financial Information Sheet along with a strong pre-approval letter from a reputable company. As a buyer, you want to choose a reputable, reliable, and professional lender to help guide you through the mortgage process. If you need a referral, your DFT agent can happily recommend a professional lender. Request a referral.
The mortgage contingency will be included in almost every agreement of sale. It’s also important to note that if the mortgage contingency date is not met, the seller can cancel the sale and return deposit monies. In a strong market, there may be multiple offers on a home. This is an extremely important contingency to meet on time.
“As a buyer, you want to choose a reputable, reliable, and professional lender to help guide you through the mortgage process. If you need a referral, your DFT agent can happily recommend a professional lender.”
2. Appraisal Contingency
While not in the body of the Agreement of Sale, this type of contingency can be added as an addendum to the contract. There is some debate on whether this is needed. Many agents will add this as added protection for the buyer. Your loan cannot be approved if the appraisal does not value the property for the sale price. If it comes in under value, you and/or the seller, will need to come to a mutual agreement on the sale price. This addendum and mortgage clause protects you if you are not be able to come to an agreement. You will be able to terminate the sale and have deposit monies returned.
3. Home Inspection Contingency
The home inspection contingency is extremely important and we highly suggest that every buyer schedules a home inspection. There are several specific types of inspections to choose from that fall under the home contingency umbrella. The home inspection is a thorough inspection of all of the mechanicals and systems of the home, including roofing, windows, heating, appliances, plumbing, electrical, and so on. You can also select termite, radon, and many other inspection types if the property calls for it. However, the three types listed above, along with property insurance are the inspections we typically recommend to our buyers.
Two additional common contingencies:
1. The Sale & Settlement Contingency (with the right to continue marketing)
Typically, this contingency is put in place if the buyer of a home has not yet accepted an offer to sell his or her current house. This is because the buyer(s) need the proceeds from their current home to purchase their next house. With this contingency, the seller should be permitted to continue to market his or her home. If the seller receives a better offer, the original buyer should receive an opportunity to match that offer. If the buyer does not match the offer, then the contract with that person should be terminated with the earnest money returned.
2. Settlement of other Home Contingency
A settlement contingency is put in place if the buyer already has a contract in place with a settlement date marked. No property is truly “sold” until the closing date, and this contingency is put in place to protect the buyer in case the sale collapses. This contingency prohibits the seller from marketing the home and accepting other offers. If the closing does not happen by the date marked on the calendar, the sale can be terminated.
Are you interested in learning more about buying or selling your home? Chat with one of our DFT agents!
Get in touch with one of our experienced DFT agents today. With your best interest in mind, we will help you make the right decisions, accept the right contingencies, and achieve your real estate goals.
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