Common Purchase Contract Contingencies
Contingent, as defined by Merriam-Webster, means “depending on something else that might or might not happen.” Just to be clear, every purchase and sale contract is different, however there are some contingencies that are more common when buying a home.
It’s very important that when you decide to purchase a home, make sure you have an experienced buyer’s real estate agent working in your best interest. It’s also important to understand what type of contingencies are common when buying a home. An experienced buyers’ real estate agent should be able to explain what a specific contingency is and what it means to you! Here are a few common contract contingencies to be aware of when buying a home.
Appraisal & Mortgage Contingency
The majority of home buyers will need to obtain a mortgage to purchase a home. The mortgage contingency in a purchase and sale contract indicates this being the case. The mortgage contingency has several different “parts.” Within this contingency, the buyer indicates what type of financing they will be applying for. Depending on the financing, the percentage that will be borrowed will vary, as will the interest rate. Within this contingency, a date will be determined as to when the borrowers mortgage commitment will be received. The final “part” of this contingency refers to bank required repairs. While the bank’s appraiser is visiting the subject property, he/she will be looking for items that would need to be repaired prior to the bank approving the mortgage. The buyer has an opportunity within this contingency to indicate what dollar amount they want the seller to be liable for in regards to these required repairs. The bank appraiser (depending on the type of financing as some are stricter than others) is normally looking for safety “issues” such as missing handrails, peeling paint, or broken windows for example.
Inspection Contingency(ies)
There are many different inspection(s) that a purchase and sale contract can be contingent upon. It’s recommended that when buying a home you have a home inspection and pest inspection. Other recommended inspection contingencies can include (but not limited to) mold inspections, chimney inspections, radon inspections, soils inspectors, and well and septic or sewage inspection. The buyer also has an opportunity within this contingency period to indicate what dollar amount they want the seller to be liable for in regards to repairs.
Sale and Transfer of Title Contingency
If buying a home while owning another home, it’s possible that a sale and transfer of title contingency will need to be included in the purchase and sale contract. This indicates to a seller that the buyer has an existing home that needs to be sold prior to purchasing the subject property. If agreed to by the seller, normally a specific number of days will be set for the buyer to sell their existing home. If during that time frame another purchase offer is brought to the seller, there should be a “bump clause” built into the contingency. If the number of days for the “bump clause” was three (3), this means the buyer would have three days to remove the sale and transfer of title contingency and provide evidence that they can perform “non-contingently” to move forward. If the buyer was able to be approved to carry two mortgages, than this would be an acceptable way to remove this contingency providing the lenders approval is not conditioned upon the transfer of title of buyers present home.
The above contingencies are what we feel are the most commonly found in purchase and sale contracts. When buying a home, be aware of these contingencies. We will be sure to explain these further with you as we apply these significant contingencies to your specific situation.
