As a buyer or seller, once a home is under contract, you may hear your Realtor® talk about “removing contingencies” as part of the home selling process. Whether you are searching for a home for sale in Lake of the Woods, Orange, or Culpeper, almost all contracts have home contingencies in them. It’s important to read your contract and discuss with your real estate agent what the specific contingencies are in your contract; keep reading to learn about the most common ones.
What are home contingencies?
A contingency refers to a condition that must be met in order for the real estate transaction to move forward towards completion. Depending on your contract, some home contingencies are time sensitive. Contingencies exist to protect everyone involved in the contract.
Examples of Home Contingencies
Inspection Contingencies: Home inspections give buyers a deeper understanding of the condition of a home. Sometimes larger issues are discovered by a home inspector than what a buyer would observe while walking through a home. Once a home inspection is completed, you enter in the home inspection contingency period. Your contract will list the number of days this contingency lasts. During this time, the Realtors® of the buyers and sellers will negotiate any repairs that are needed or wanted by the buyers. If an agreement cannot be reached, the buyers can exit the contract.
Finance Contingency: Many buyers chose to pursue a mortgage to purchase a home. With a pre-approval letter in hand, they begin the home buying process. The finance contingency gives the buyers time to receive a loan for the purchase of a home. Sometimes, even buyers with pre-approval letters, can have an unexpected issue arise when the loan is being examined by underwriters. If the buyer is denied a mortgage through no purposeful fault of their own, then they can exit the contract.
Appraisal Contingency: An appraisal is a third party estimated value of a home completed for the bank who is providing the mortgage. If the value of a home is less than the agreed upon sales price in the contract, then the bank will not lend the buyers the full amount of the sales price. When this happens the buyers and sellers can negotiate the sales price, negotiate how to make up the difference between the sales and appraisal price, or the buyers can exit the contract.
Title Contingency: Title companies or a real estate attorney research the records related to the ownership of a home to look for any issues. Usually any issues can be solved before the closing date. However, challenges like liens that have been placed on the home present themselves. A lien is a legal claim against a property that is used by a company when someone has an unpaid debt. If a problem with the title is discovered, the title contingency allows the buyers to determine if they would still like to purchase the property or exit the contract.
While it seems like a lot, all of these home contingencies are worked on simultaneously, and typically within about 45 days of ratifying a contract, the contingencies have all been met and the home is ready to be sold. Having a communicative Realtor® that keeps you informed of all these steps in the process will help you understand everything that is happening and keep you at ease.
