What Home Buyers Need to Know About Contingencies

Depending on how you look at it, home buying contingencies offer protection and peace of mind to home buyers—or they allow buyers to weasel out of contracts, leaving sellers holding the bag. People often have strong feelings about home buying contingencies, but what do home buyers really need to know about contingencies when buying a home?

What are Home Buying Contingencies?

In a general sense, contingencies are simply terms or conditions that have to be met before the home sale can proceed. If the contingencies are not met, the deal could fall through.

Both the home buyer and seller can ask for contingencies to be written into the contract; when this happens, there's usually a time period by which the contingencies must be satisfied. If the time period is tight, buyers and sellers may need to work very quickly to get the conditions met in time.

Real estate lawyers can add contingencies into the real estate contract before it's signed by both parties. Contingencies typically specify the conditions under which the deal can be canceled and the precise method of canceling it (e.g. email). Since contingencies are legally binding, it's important that both parties understand and accept the contingencies that will bind them when performing a real estate transaction, whether it's a home in McKenzie Lake or elsewhere.

Common Home Buying Contingencies

While contingencies sound stressful, they can ultimately be good for home buyers and sellers, who get to specify conditions. Common contingencies include:

• Home inspection - Home buyers often insist on a satisfactory home inspection as part of the deal. If the home inspector finds a serious fault in the home (say, a damaged foundation), the buyer can walk away or ask for credit to reflect the condition of the home.
• Appraisal - It's wise to insist on an appraisal contingency, which allows the buyer to walk away if the home does not appraise at or above the accepted offer.
• Contingent on finding another home - Home sellers may request the sale be contingent on their finding another home to buy, a clause that can frustrate buyers who need to wait for the deal to proceed until the seller finds a new home. Home buyers can also ask for the same contingency, for instance if they are already home owners but need to move to a larger place.
• Financing - It's standard for buyers to insist on a financing contingency, which means the deal only proceeds if they are able to obtain mortgage financing.
• Home Insurance - Since many lenders require homes to be ensured as a contingency for financing, savvy home buyers add in a contingency that states they must find an insurer willing to insure their home before the closing.
• Title - Home buyers may want a title contingency, where the sale only goes through if the home owner can prove they have a clear title to the property.
• Homeowner's Association - Buyers of association properties should insist on reviewing all homeowner's association documents before closing, since the HOA terms will dictate what they can do with their home. This is a good condition to use if a home buyer has certain deal-breakers that would change their mind on a home.

Contingencies can reduce the risk for both parties, while also protecting the interests of the mortgage lender who is financing the deal. Approached with the right mindset and used judiciously—too many could lead the seller to decline the offer and wait for a more flexible buyer—they can help home buyers obtain the home they want for the right price, while taking care of their secondary needs.