Contingencies: Why Are They Important When Making An Offer To Purchase Property?
You’ve started the process. You made the decision to purchase a home, perhaps even your first one! Now that you have found the one you want, what’s next? Your agent will help you, read more for some tips and insight as to how the process works. First, you need to make an Offer. What that is, is basically an expression of your desire to purchase the property and at what price you are willing to do so. Your offer will be the first step in the negotiation process. Just like any other offer you make, it would be highly helpful to take the other party (in this case, the seller) and his/her expectations into consideration when making your offer. The seller has set an asking price for the property, but remember this is not set in stone! Often, you as a buyer, can save lots of money just by starting with the right offer price.
Often, when writing an offer, there will be lots of contingencies involved. Contingencies are basically built-in protections to make sure that your risks are being limited and you are being afforded the most protection possible. Your offer will include information such as: the price you are willing to pay as well as other details that are involved in the negotiation process such as down payment and financing information, inspection information and timetables on the method and manner that you will be receiving legal and physical ownership of the property. Other information included will be whether personal property is included in the purchase, terms of cancellation, any repairs you want performed, which professional services will be used, and how to settle disputes should they occur. Here, we will focus on the topic of Contingencies to give you a better idea of what they are and how they work.
Although in most transactions there may be slight challenges, most will go quite smoothly. However, we want you to be prepared and anticipate potential problems so that if something does go wrong, you will be in a position to cancel the contract without incurring any penalties. These protections are called "contingencies" and should be included when you offer to buy a home.
Often, a buyer will not be making a full cash offer on a property, that is, offering one lump sum as payment in full. As a result, that buyer will seek and need financing to complete the purchase. Obtaining suitable financing can be made a contingency as well. Buyers often do this to protect themselves, should they be unable to secure financing. Another contingency that buyers should consider is that the property should appraise for at least what the buyer agreed to pay for it. Inspections will be performed and reports will be provided before such contingencies are lifted.
Sometimes, a buyer will agree to purchase a home while in the process of selling the home he/she is currently living in. Often, even though an offer has been accepted on the buyer’s current home, the buyer and his/her potential buyer may still be involved in escrow, making that transaction a “pending” sale that has not “closed” yet. As such, a buyer would want to make that closing a “contingency” on the offer he/she is making; so that should something go wrong and that sale not close, the buyer would not be forced into a situation where he/she would be responsible for two mortgage payments each month.
Ultimately, contingencies protect buyers just in case they find themselves in positions where they become unable to perform or choose not to perform on a promise to buy a home. Without contingencies, a buyer may find himself/herself forfeiting his/her earnest money deposit.
