Contingencies….Pro or Con?
What is a contingency? Basically, what you’re saying with a contingency is, “As long as you do these things or this happens, I will pay you this much for your home.”
Financing: This offer is contingent on you securing your financing.
Inspection: This offer is contingent on the home passing an inspection typically covering items such as roof, HVAC, plumbing, electrical, foundation, walls, appliances and chimney if you have a working fireplace. Some areas also require inspections for termites and radon. If major issues ensue due to the inspection, you may be asked to negotiate on your price or complete the repairs in order for the buyer to proceed.
Appraisal: This offer is contingent on whether the appraised value is close to, at or above what’s being offered. This is most typical when a mortgage company is part of the process. With cash deals, the buyer may choose to waive an appraisal if they feel confident of their offer and your price.
These are the most common contingencies that you’ll experience as both a buyer and seller. There can be others so if you receive an offer and your potential buyer includes several contingencies or is asking for a lot of concessions on your part, you may want to hire a real estate lawyer to ensure that when you walk away from closing you are doing so with exactly what you expect.
NOTE: As a buyer, if you’re in a bidding war for a home that you absolutely want to call your own, consider shortening your contingency time frame or eliminate them altogether. If you’re buying in a very popular and quick selling area, it will definitely serve you well to secure your mortgage approval prior to making your offer so you can eliminate that contingency which will most likely give you an edge on other buyers who didn’t do so.