Monday, May 4, 2015
By Jed Williams
Contingencies

When buying a home, there can be a lot of anxiety for the buyer. Oftentimes it is the biggest investment anyone makes in his life. And there is a lot to be nervous about: Will I be able to afford this? What if the seller is hiding something? What if I can’t sell my current home and am stuck with two mortgages? There is certainly a lot to consider. Your Hagan agent will make sure all of these worries are put to bed before you settle on a final contract in a number of different ways, but mainly through the use of contingencies. When negotiating between you and the seller, the buyer’s agent protects his client by putting contingencies that must be met into the contract so that the contract is invalid if the conditions are not met. There are a number of different contingencies that you and your agent can discuss putting into the contract, and because not all real estate transactions are created equal, it would be impossible to list them all. Included in this blog are just a few of the most common that are used in typical residential real estate transactions.

Probably the most common contingency is the one based on inspection. It ensures that the home is livable and meets your criteria for a place you could live with. Your inspection will point out any defects in the home, any upcoming major expenses, and anything else your inspector finds that could really break the deal for you as a buyer. Because you have control over whom you hire to do the inspection, you can feel secure that he is working for you to make sure everything is disclosed. He will point out if there has been water or fire damage in the past, if the roof will soon need to be replaced, or if the windows are efficient or not. Knowing that you may need new windows will help you to renegotiate the contract, asking the seller to either replace them before you move in, give you a credit to replace them yourself, or to knock down the price a bit. Whatever the inspection turns up, this contingency protects buyers against potentially buying a home that has major structural issues.

The appraisal contingency is also a very common one. This protects buyers from overpaying for a property. It also protects the lender from lending too much money for a property that could never see a return on that loan. Making sure the home appraises for fair market value gives you peace of mind that you are making a sound financial investment. If the home appraises for much less than the price you and the seller agreed upon, it’s usually back to the negotiation table. Lenders will usually not lend more than 80% of the appraised value of the home, so if your home appraises for much less than what you agreed to paid originally, you will need to bring much more cash to the closing table. This contingency protects you against sticker shock.

Like the appraisal contingency, a mortgage contingency protects your finances. You don’t want to buy a home that you can’t pay for. Because your agent likely requested that you obtain a prequalification letter from a lender before he showed you any homes, you may think this approves you for a mortgage. It does not. You will want to make sure that you are approved well in advance of closing. Getting proof from your lender that you are covered for the mortgage ensures you have the money to back up your end of the transaction.

If you are buying your second, third, or fifty-first home, your agent will likely advise you to put a contingency in your contract for the sale of your existing home. You won’t want to be stuck paying two mortgages, so making sure you have your existing home out of your name before the new home is in your name is the only way to do that. Of course there are situations that arise that may not make this contingency completely necessary, but overall it is a good idea for your protection.

This is not an exhaustive list of all of the contingencies you may encounter or that your Hagan agent may advise you to consider writing into your contract. Know that with each of these there is a possibility that the buyer may reject your offer for a more attractive offer that does not include so many contingencies. You will have to weigh all the pros and cons and determine if risking your protection is a good option in favor of obtaining a certain property.

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Jed WilliamsJed Williams
Principle Broker and founder of Hagan Realty