Buying a home means there will be costs involved in the process, such as earnest money deposits, appraisals, inspections, title searches and the costs to market your existing home. You may think you have all the bases covered in negotiating the terms of your contract, but things happen and deals do fall apart – some at the last minute.One way to protect yourself from additional loss is with appropriate contingencies. Accepted contingencies give you the right to walk away from the contract with no penalty (other than some of the incidental costs mentioned above).
In some cases sellers avoid contingency contracts and may pressure you to move quickly and drop contingencies. But what if the property fails to appraise at the right value, or your lender fails to fund your loan? Know what you can include in your contract as a contingency and be prepared to stand firm!
The home inspection provides the opportunity to help you decide if you should walk from a tempting deal. Even properties that look well maintained and in good condition can have hidden flaws. In addition to the basic home inspection, there may be other inspections (for lead, termites, sewer and others) or areas that need to be addressed in your contract. Make sure you know what you are getting into!
The types of contingencies vary from state to state. Here are the top 10 most common contingencies and what be aware of as you make your offer>
Common Purchase Contract Contingencies
- Appraisal. Beware of the possibility that the appraisal may come in low.
- Loan Contingency. Your lender may fail to find your loan as requested, even if pre-approved.
- Home Inspection. One of the top indicators of flaws in the home.
- Lead-based Paint. Federal laws gives all buyers 10 days to inspect for lead-based paint.
- Wood Destroying Pest Inspection. The contract should specify who pays for termite inspection and correction.
- Roof Inspection. Make sure the roof is part of the home inspection, and if not specify a third party inspection for the roof.
- Sewer Inspection. This can be especially important for an older home or home on a septic system.
- Preliminary Title Report. Make sure the seller can transfer a clean title, with no unpaid liens against the property.
- Seller Statutory Disclosures. Some states require sellers to disclose all know material facts about the history of the property.
- Contingent on Existing Home. This is one of the most common contingencies, and sellers usually specify a number of days to perform.
When negotiating your offer and contract, make sure you protect your rights as a buyer and understand your state laws and other requirements necessary to close on your new home!