You’ve done all the legwork, prepared your home for sale, and (finally) received an offer. Don’t celebrate just yet… because when you go through the offer with a fine-toothed comb, you may notice contingencies. But what are contingencies, and how can they affect your home sale?
In real estate lingo, a “contingency” is a clause or condition added to an Agreement of Sale. The contingency must be met in order for the deal to close. If a contingency isn’t satisfied, your home sale is not likely to go through.
While there are many possible contingencies, the most common involve inspections, appraisals, financing, titles, and home sales.
Read on to discover what home sellers need to know about real estate contingencies.
Inspection contingencies in real estate benefit the home buyer, allowing them to renegotiate their offer if the inspector discovers problems. It also allows the buyer an out, so they can walk away from the sale.
After a home inspection, the buyer will receive a report that details the property’s condition. Inspections identify any potential problems associated with the home, including serious issues such as mold or termite damage. Inspectors also include recommendations as to how to fix these problems.
Many (if not most) buyers add an inspection contingency into their offer. When the buyer reviews the inspection report, they can then choose to negotiate a lower price or ask you, the seller, to complete repairs.
If you can’t come to an agreement, the buyer can back out of the sale.
Many buyers add an appraisal clause to their offer. Why? Because a home’s fair market value depends in large part on the results of the appraisal. If an appraisal comes in low, the buyer may then struggle to get financing approved from their lender.
For instance, imagine you and a buyer agreed on the price of $250,000 for your home. Unfortunately, the appraisal comes back at only $200,000. That means the buyer’s lender will only agree to a $200,000 loan, which is less than the sale price you agreed to.
The buyer can’t swing an additional $50,000 out of their pocket. Either you agree to lower sale price or the sale falls through.
Most buyers can’t simply pay cash for a home, so they must seek a mortgage loan. A financing contingency provides the buyer with the time they need to apply for and receive a loan.
Many buyers believe that just because they’ve received a loan pre-approval, they’re guaranteed to be approved for a loan. In reality, the pre-approval is simply the start of the lending process.
Once a buyer is pre-approved, they must still choose a loan product and make it all the way through the underwriting process… and that’s where many buyers run into difficulties.
A common financing real estate contingency says that if the buyer isn’t able to secure financing, they may either take the time to seek out alternative funding sources or walk away from the sale.
A title serves as the official record of a home’s ownership. It includes who’s owned the property, from the past to today, as well as any legal judgments or liens against the home.
During a typical home sale, an attorney or a title company will review the title before the sale. They can identify any potential issues and resolve them before closing, so the title can cleanly transfer to the new owner.
But sometimes, title searches reveal issues that can’t be solved before the sale closes. A title contingency allows buyers to walk away, rather than take on the risk of contested ownership or unpaid debt
5. Home Sale
If a buyer already owns a home and wants (or needs) to sell it before buying another, they may add a home sale contingency into their offer. This contingency gives buyers time to sell their own home.
Sometimes, this real estate contingency allows buyers to walk away from the sale with their earnest money deposit, even if the seller took the home off the market. For obvious reasons, many sellers really don’t like this contingency.
In a nutshell, contingencies are a pain. They’re typically geared toward protecting the buyer — not the seller — and they can really ruin your sale, often at the last minute.
After your sale falls through, you have to start the selling process all over again! Fortunately, there’s a better, easier way: Sell to a buyer that doesn’t require any contingencies.
While individual home buyers will almost always use contingencies to protect themselves, HomeGo doesn’t need them. That means your sale will go through, quickly and easily with no unpleasant surprises. You’ll receive a firm offer with no contingencies, no worry, and expense associated with making repairs or preparing your home for sale.
HomeGo buys houses as-is and does not require a formal inspection or appraisal. Additionally, we purchase homes with cash, meaning there’s no need to worry about the financing falling through.