By Alison Brown, California Listings Guest Columnist
While the real estate market experienced (mostly) ups and (slight) downs through the extended pandemic, it is still widely considered that buying a house is one of the best ways to build a wealth portfolio. There are no certainties, but attaining properties is always a good call.
Despite this, buyers should always protect themselves against both the inevitable and the unexpected. Even if there are no certainties, there are ways to work around this. Some home sales are “contingent,” that is, they are based on a “expectations” scenario that can allow buyers to back out of a sale or alter the purchase if something should fall short during the purchasing process.
In Part I of this series, we explained how contingencies generally work in the home sale process. Now, let’s take a look at some of the common contingencies you may want to consider upon negotiating a home purchase.
Common Contingencies
Home Inspection
A home inspection contingency lets any home inspector thoroughly assess the home’s condition pre-sale, properly checking aspects that the owner might not be aware of and the buyer might not see or think about. If the inspector notices some flaws in the home, flaws that haven’t been outlined in the contract, this allows the buyer to back out of the sale, or lets the buyer and seller renegotiate terms and conditions.
Mortgage Contingency
This contingency lets the buyer have a specified period of time to secure their financing for the purchase. Financing contingencies can be handled by ensuring that the buyer has been pre-approved for the mortgage. Pre-approvals mean that finances are in order by making sure you get the mortgage for the home. However, pre-approved doesn’t mean pre-qualified, it only means that the lengthy paperwork phase has been taken care of.
This contingency exists to ensure that the proper paperwork has fallen into place, allowing the buyer to make an important finalizing step while also letting the seller see that the buyer is actually following through on the financing step.
Appraisal Contingency
When you’re taking out a mortgage, you might consider the appraisal contingency. If the seller asks for an absurd price that fits the neighborhood, the buyer may be all-too-ready to pay it, even if that price doesn’t actually reflect the quality or value of the home. When you go to a lender you will find that lenders require appraisals—a third-party method to investigate the actual worth of the home.
Even if the buyer and seller have fully agreed to a price, the lender can’t actually authorize a mortgage if it is above the home’s appraisal. Since real estate prices can change rapidly in heated markets like the one we’re currently in, it can be frustrating to actually meet that appraisal number. Sometimes buyers will consider paying more cash up front to acknowledge the difference between mortgage and agreed price, or the buyer and seller can back out and renegotiate terms.
Title Contingency
Similar to an automotive vehicle, a home’s title shows who actually owns the property, and who has owned it up until present day. Since some homes don’t have what is called “clean” titles, there can be issues from the past that gum up a sale.
Claims that exist against the title can be a problem or risk for the buyer. It’s always good to make a title search before closing a sale, and if you have a title contingency in your deal it means that it will protect you during the negotiation.
Home Sale Contingency
Another finance-related contingency, this contingency exists to ensure that a home sale will only go through when your current home sells. If you are currently in a seller’s market, the seller might reject this contingency or look for another buyer who doesn’t have it. There are loans or cash-on-hand options that might help this situation for both buyer and seller, or you can negotiate your closing dates and mortgage.
Contingencies Protect The Buyer
No matter your situation, contingencies protect the buyer. Having contingencies in your contract will protect you in the long run and ensure your sale is smooth and fair. In a demanding housing market, you want to make sure that you are getting the best deal possible and not missing things before you finalize the deal.
You need to be comfortable with the home, neighborhood, and area before making any big purchase. Beyond contingencies, make sure you are in love with your new home. Get to know the local parks, schools, business opportunities, grocery stores and entertainment venues. Buying a home is a big deal, and you should always be certain of what you are getting into before you close.
Alison Brown is marketing and communications expert with a passion for real estate, currently serving as the Marketing Strategist at Children’s Dental Fun Zone. She loves spending time with kids and contributes her insights by writing and promoting informative blogs for families to help them adapt to their new homes and localities without any hurdles.