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Common Home Offer Contingencies

Once you reach the point of making an offer on the home, there are a number of very important factors to consider, including whether or not to make the offer contingent on one or more conditions. In fact, contingency clauses are very common when making an offer on a home. While a buyer may include almost anything in a contingency clause, there are some contingencies that are more frequently included than others. Here are a few common contingencies you may want to consider when making your offer to purchase a home:

Financing Contingency

A home buyer will often include a financing contingency in an offer to ensure that the he or she is able to secure a mortgage before the closing day in order to cover the cost of the purchase. Although a buyer may have been pre-qualified for a mortgage loan, something could still come up that prevents the financing from actually going through when the time comes to finalize the loan. Unless a buyer is paying cash for the purchase, he or she is depending on financing and, therefore, will not want to be legally obligated to purchase a home if he/she does not have the means to do so. While a financing contingency clearly protects the buyer, the seller can also include provisions in the contingency clause that protect his or her rights as well. For example, the seller might require the financing to be secured within a specific time period or may even reserve the right to secure the financing on behalf of the buyer in order to ensure that the purchase goes through.

Inspection/Appraisal Contingency

These are actually two separate contingency clauses; however, they are both commonly included by a buyer when making a home offer. An inspection contingency conditions the purchase on a satisfactory inspection of the property by a certified inspector. An appraisal contingency conditions the purchase on an appraisal that is high enough to secure the financing needed to complete the purchase. From a seller’s standpoint, an inspection contingency means that any potential defects or problems in the home that were previously unknown will be noted before the home sale is complete. Because the majority of buyers will not accept a home with serious defects, it is best for the seller to know about them and have the opportunity to repair or fix the problem early on. Typically, an inspection contingency gives the buyer the option to accept the home as is, require the seller to repair a problem, or be released from the contract if the inspector finds a problem or defect. On the other hand, an appraisal contingency lets both the seller and the buyer know if the home is priced significantly higher than the market will support. A lender will only loan a borrower a percentage of the home’s value in the current market. If the parties have agreed to a sales price that is higher than what the home appraises for then the buyer can back out of the deal and the seller now knows that the price likely needs to be reduced because prospective buyers will be unable to obtain financing at the current list price.

Title Contingency

Producing a clear title is one of the most common contingencies a buyer includes when making an offer on a home. “Title” refers to legal ownership of the property. Numerous problems can arise when a title search on a property is completed – problems that will result in a seller not being able to produce a clear title. An unpaid judgment against the seller, for instance, can result in a lien against the property. An easement recorded by the city or county could also prevent clear title. As a buyer, you want to be sure that you know exactly what you’re in for when buying a home. There are cases where the seller is unaware of these obstacles to clear title, which is why a title contingency is beneficial to both parties.

Although a buyer is usually the party who includes the contingency clause when making an offer on a home, some of the more common contingency clauses actually protect both the buyer and the seller from unanticipated obstacles that could interfere with the sale of the property. For more detailed information about making a home offer, you can reach out to a Better Homes and Gardens real estate agent in your neighborhood!