When you’re buying a home in Ellicott City, your REALTOR® will build contingencies into your contract. These contingencies are designed to protect your interests in the deal – but what are contingencies, and what can you expect to see?
Here’s what you need to know.
What Are Contingencies in a Real Estate Purchase Contract?
Contingencies are conditions – and either you or the seller must meet them before the deal can go through. Because they’re part of your contract, all interested parties (you and the seller) must meet the conditions assigned to you. If either side fails to do so, the parties are allowed to back out of the deal.
So why does that matter?
If the seller doesn’t hold up his or her end of the bargain, you’re allowed to cancel the deal and get your earnest money deposit back.
Common Contingencies in Real Estate Purchase Contracts for Homes in Ellicott City – and Beyond
When you work with a buyer’s agent, his job is to represent your best interests. In fact, he’s bound by law to put your interests above everyone else’s in the transaction (even his own). His fiduciary duties to you include:
- Reasonable care and diligence
Together, those duties mean that your agent will be working in your best interest in the transaction – and that most likely includes building contingencies into your contract.
Some of the most common real estate contingencies include those related to:
- Selling your current home before you’re obligated to buy another
- Allowing you to secure financing before requiring you to buy a home
- Letting you back out of the deal if the house you want to buy appraises for less than its sales price
- Allowing you to change your mind if the inspection turns up issues you don’t want to deal with
Here’s a closer look at each.
Home Sale Contingencies
A lot of people start house-hunting before they’ve sold the home they currently live in. In fact, most of us do. If that’s your situation, too, and you don’t want to be on the hook for two mortgages, your real estate agent can build a home sale contingency in your contract. This type of contingency gives you time to find a buyer for your current home – and if you can’t do so, you have the freedom to walk away from the deal without losing your earnest money.
Related: How to price your home to sell fast
Nobody wants to be forced into buying a home they don’t have financing for. (Do you have $300,000 or more just burning a hole in your pocket?) If you’re planning on using a mortgage loan to buy your next home, your agent will put a finance contingency in your contract. It gives you time to apply for – and receive approval for – a mortgage loan that you’ll use to buy the home. If your financing falls through when you have a financing contingency in your contract, you have the right to back out of the transaction.
Related: 7 essential first-time buyer tips
Usually, mortgage companies won’t lend you a dime until they’re sure that the home you’re buying is worth every penny. They’ll send an appraiser to the house (at your expense) to determine how much it’s worth – and if the appraiser says the house is worth less than what the seller wants you to pay for it, the lender will most likely decline to lend you that amount. Sometimes lenders will still let you borrow what the house is worth, but you’ll have to come out of pocket for the difference. For example, if a home for sale in Ellicott City is listed at $350,000 but the appraiser says it’s worth $325,000, your lender can opt to let you borrow that amount – and it’s up to you to negotiate with the seller or come up with an additional $25,000.
However, with an appraisal contingency in your contract, a low appraisal lets you exit the deal without giving up your earnest money deposit.
Your REALTOR will most likely encourage you to get a home inspection before you commit to buying a house – and for good reason. If the inspection turns up damage or other conditions you can’t live with (and are unwilling to fix or ask the seller to fix), you’re allowed to cancel the transaction based on your inspection contingency. You can ask the seller to make repairs or improvements if you choose to, but with this contingency, you’re not required to buy the house if you don’t want to do so.
Related: What are allowances in real estate?
The bottom line is that your REALTOR is on the lookout for ways to protect you in the deal, even if he won’t be able to sell you a house. That’s one of the myriad benefits of working with a buyer’s agent.
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