Closing on your new house is arguably the most important moment in the home buying process. It’s where we reach the point of no return. Once the deal is done, it’s done. There’s no taking it back. Because purchasing a property is such a large undertaking, the buyer in these situations should protect themselves and ensure that they are receiving a fair deal. These safeguards are known as contingencies.
Merriam-Webster defines a contingency as “an event (as an emergency) that may but is not certain to occur.” That definition applies to purchase offer contingencies, as well. Each contingency in the contract is a stipulation that can affect the status of the sale. We’re going to explain the most common purchase offer contingencies, so that when the time comes to close your transaction, you will be prepared.
Mortgage Financing
This contingency states that a buyer will secure a mortgage in a predefined time period (often around a month). The buyer can specify what terms of their mortgage will satisfy this contingency. Term, interest rate, and loan amount are all fair game. There’s a catch, though. The seller is entitled to a written notification before the end of the financing contingency period. Otherwise, the purchase agreement will become a binding contract, regardless of a buyer’s loan status.
Buyer’s Home Inspection
A buyer’s home inspection occurs during what is known as the due diligence period. During this time (often around two weeks), the buyer has the right to enter his or her prospective home to conduct inspections and tests. During a home inspection, a professional inspector will walk through the house and check for issues, both minor and major, like foundation integrity, condition of the windows, and electrical or plumbing problems. Anything found can either negate the purchase contract or open renegotiation talks.
Appraisal Contingency
This protects the bank from financing a home that is priced above the fair market value. For example, a neighborhood may increase the potential value of a home and thus, the agreed upon purchase price. However, a home appraiser might find other reasons why the home isn’t worth what the seller originally estimated. Appraisal is part of the mortgage process, because lenders are not going to approve a loan for more than the appraised value. This is an easy way to know whether or not your mortgage is viable.
Insurance Contingency
Seattle is at risk for several natural disasters, including floods, earthquakes, and having five active volcanoes in the state of Washington. The insurance contingency states that the buyer has the right to back out of contract if they are unable to procure an acceptable homeowners insurance policy. Insurers don’t only account for natural disasters, but other common problems like crime, poor wiring, plumbing issues, and more.
It’s important to remember that all of these contingencies are negotiable. Each purchase agreement will vary, depending on buyer and seller demands. The Seattle housing market is very competitive, and sellers will often reject offers due to prohibitive or excessive contingencies. Such a large pool of potential buyers means that the ball is in the seller’s court. It’s important to work with your real estate agent to include a set of fair, but sufficiently protective, contingencies in your purchase agreement.
If you’re in need of a realtor in Seattle, get in touch with us. We have extensive experience navigating the Seattle housing market, and we know what contingencies are fair and which will slow down a home sale.
