In hot real estate markets, buyers sometimes go the extra mile to make their offer stand out by offering sizeable down payments or writing strategic offer letters. And in markets where multiple offers are the norm, it’s not uncommon to waive contingencies, which give buyers the right to back out of contracts under certain circumstances. But not so fast! While removing a contingency could result in a faster transaction and be attractive to a seller, you could find yourself paying for the removal of unnoticed black mold in the attic or absorbing the cost of a lower valued appraisal. Here, Trulia suggests the four important contingencies you should never remove from your offer.
1. Inspection contingency
A home inspection contingency—strongly recommended by most real estate agents—specifies that you will get a licensed home inspector to check the property within a specified period (typically seven days) after you sign the purchase agreement. Once the inspection is complete, you’re allowed to request that the seller make repairs, and it’s up to you to decide what repairs you request. The seller then has the option to make the repairs or counter. If an agreement can’t be reached, buyers can back out of their purchase with their earnest money deposit intact.
2. Financing contingency
This clause states that your offer on the property is contingent on being able to secure financing. The main goal of a financing contingency is to ensure that if you can’t obtain a loan, you’ll be able to get your earnest money deposit back. The clause specifies that you have a certain number of days to get your mortgage approved by your lender. Many lenders recommend homebuyers allow for up to 14 days.
3. House-sale contingency
Many buyers need the equity in their current home to purchase a new one. This contingency means that if the sale of a buyer’s current home falls through, so will the sale of the home the buyer wants to purchase. Including a prior-sale contingency in the contract for your new home provides an opportunity to withdraw the offer if your existing home does not sell by a certain date. If you need to sell an existing home before you buy a new one, it’s certainly an option to consider; however, be warned that it’s also one that has been known to scare away sellers.
4. Appraisal contingency
This contingency is arguably the most important because it could save you up to tens of thousands of dollars. Typically, when you buy a house, you put in an offer, and if the seller accepts it, your lender orders an appraisal. But if the appraisal comes in lower than the price you agreed to pay, you’ll have some decisions to make—mainly how to make up the difference in the home price and the loan amount. You’ll have more options if you’ve included an appraisal contingency. Such a contingency usually stipulates that the appraisal must come in within 5 percent or 10 percent of the sale price, or sometimes even at or above the sale price. You can try to negotiate with the seller to meet you halfway, but with this contingency, it’s your call to determine whether you’re overpaying for the property and want to back out.