Know Your Contingencies When Buying a Home!

Contingencies in the context of buying a home refer to specific conditions or requirements that must be met in order for the sale of the property to proceed. These conditions are typically outlined in the purchase agreement or contract between the buyer and the seller and serve to protect the interests of both parties. Contingencies allow the buyer to back out of the deal or request specific actions if certain conditions are not met, without forfeiting their earnest money deposit. Some common contingencies in a home purchase agreement include:

1. Home Inspection Contingency

This contingency allows the buyer to have a professional home inspector assess the condition of the property. If significant issues are discovered during the inspection, the buyer can often negotiate repairs, credits, or cancel the deal without penalties.

2. Appraisal Contingency

If the home doesn't appraise for the agreed-upon purchase price, the buyer can request that the seller lower the price to match the appraisal value, or they may choose to cancel the deal.

3. Financing Contingency

This contingency protects the buyer in case they are unable to secure a mortgage loan with the terms specified in the contract. If the buyer can't obtain financing, they can cancel the deal without losing their earnest money.

4. Title Contingency

This ensures that the property's title is clear of any liens, disputes, or legal issues. If title problems arise that cannot be resolved, the buyer can typically back out of the sale.

5. Sale of Current Home Contingency

If the buyer needs to sell their current home to finance the purchase of the new one, this contingency allows them to cancel the deal if they can't sell their current property within a specified time frame.

6. Homeowners Association (HOA) Contingency

If the property is part of an HOA, this contingency allows the buyer to review the HOA's rules, regulations, and financial health. If they find any issues that they cannot accept, they may withdraw from the contract.

7. Lead-Based Paint Contingency

For homes built before 1978, sellers are required to disclose any known lead-based paint hazards. Buyers can have an inspection and can back out of the deal if the presence of lead-based paint or hazards is discovered.

8. Mortgage Contingency

In cases where the buyer is reliant on securing a specific type of mortgage (e.g., FHA or VA), this contingency may be included to protect the buyer in case they are unable to obtain the intended loan.

9. Insurance Contingency

A buyer may require specific types of insurance, such as flood insurance or homeowners insurance, and this contingency ensures they can back out of the deal if they cannot secure the necessary coverage.

10. Septic or Well Contingency

If the property has a septic system or well, the buyer may want to have these systems inspected to ensure they are functioning properly. This contingency allows the buyer to address any issues or withdraw from the sale.

Contingencies provide a safety net, ensuring that the home purchase process is fair and transparent. They allow buyers to investigate the property thoroughly and make informed decisions while also giving sellers some degree of assurance that the deal won't fall through without valid reasons. The specific contingencies and their terms can vary depending on the local real estate market, laws, and the preferences of the parties involved in the transaction. It's essential for both buyers and sellers to understand and carefully negotiate these contingencies in the purchase agreement to protect their interests.