Part I of this 3-part series on Offers discussed the offer price, while part 2 discussed the numerous dates associated with the offer. This final piece discusses the various contingencies, if any, that are associated with your offer.
So what is a contingency? Simply put, it’s a condition that must be met in order for you to agree to proceed with the purchase of the property. There are some standard contingencies that are frequently included in offers, depending upon the Buyer’s circumstances and wishes. These include:
- Inspection Contingency – The majority of Buyers opt to have the home inspected by a licensed home inspection professional before proceeding with the sale as originally written. If you are unhappy with the results of the home inspection, this contingency allows you to get your deposit money back and terminate the deal, or to attempt to renegotiate the offer based on new information that you had no way of knowing prior to the inspection.
- Mortgage Contingency – If your purchase of the property requires you to take out a mortgage, the mortgage contingency protects your deposit money in the event you are turned down for the mortgage by the bank. You will not lose your deposit if your mortgage application is denied, as long as you have fulfilled the obligations in the Offer and/or Purchase & Sale Agreement.
- Home Sale Contingency – While not as common as the inspection and mortgage contingency, a Buyer may have to include a home sale contingency if they are unable to purchase the property without first selling a home they already own. Sellers sometimes refuse offers with home sale contingencies because they don’t want to miss out on another “ready, willing and able” Buyer who could close more quickly. But there are ways of reducing the risk to the Seller, such as the incorporation of a “48-hour kickout clause”. The bottom line is that if you can’t afford the new home without first selling the old one, then you really have no choice but to include a home sale contingency. Thus, it is not a contingency of choice, but rather one of necessity.
- Condo Docs Contingency – If you are buying a condominium, it is common to include a contingency that provides you with a specified timeframe to review the condo docs to be sure you are comfortable with the condominium association, its financial stability, rules & regulations, etc.
The above are all common contingency clauses that are frequently included in offers. But you could place any contingency that you want on your offer. You could state that your offer is contingent upon not closing for 6 months. You could say it is contingent upon the dead tree in the front yard being removed prior to closing. You could stipulate that it’s contingent upon your mother approving of the house when she arrives from Italy in 3 weeks. The Seller, of course, does not have to agree to any of the conditions. The more “unusual” and uncertain, the less likely it is that the Seller will agree. Uncommon contingencies should be used sparingly if you want the Seller to accept your offer.
Before closing, it’s important to highlight the most important quality of an offer, and that is its owner. This is YOUR offer, it is not your Realtor’s. YOU are the one buying the house. And while your Realtor may advise you on all aspects of the offer, it needs to reflect YOUR terms and YOUR wishes. So before you sign your name to the bottom and hand over a deposit check, be sure you’ve read everything carefully and that you understand and agree with everything stated therein. Good luck!