Home Buying Contingencies Explained

Posted by Justin Havre on Wednesday, January 9th, 2019 at 8:07am.

An Explanation of Home Buying ContingenciesWhen buying a home there are contingencies that are often put into the contract. These mean that the sale will only go through if those conditions can be met. The most common contingencies for home buyers are financing, inspection, and appraisal. But there can be others, depending on the property in question, what the buyer is looking for, and what the buyer feels the seller may agree to. While a real estate agent can advise the buyer about contingencies that are common and that they may want to put into the contract, it's also important for buyers to have a good understanding what they are asking for or what they are waiving.

Common Home-Buying Contingencies

There are three home-buying contingencies that many home buyers include in their home purchase offer. They are:

  • Appraisal contingency. This enables the home buyer to renegotiate or cancel the purchase offer if the home does not appraise for an amount at or above the offer price.
  • Financing contingency. This allows the home buyer to cancel the contract if the mortgage does not fund.
  • Inspection contingency. The inspection contingency enables the home buyer to cancel or renegotiate the contract if the home inspection turns up big problems with the home.

All of these contingencies are designed to protect the home buyer.

Most Purchase Contracts Are Contingent on Financing

By far the most common contingency is financing. Most buyers can't purchase a home without getting a mortgage. If they can't qualify for a mortgage, they can't buy the house. When they put a financing contingency into the contract, they have a way out of purchasing if a bank won't lend them the money to buy the house. That doesn't happen too often if they have already been prequalified, but it can and does happen sometimes. With a financing contingency, a seller can't try to force a buyer to purchase a house if banks and other lenders won't loan that buyer the money for the sale.

Having an Inspection Done is a Common Contingency

Another very common contingency is inspection. Many buyers want this, especially if they are inexperienced at buying homes or if they are purchasing an older home that may have problems. But keep in mind that even brand new homes can have issues, and some of those issues may not be very obvious to an untrained eye. That's why an inspection can be so valuable. Sometimes this contingency is waived, though. In a bidding war, waiving an inspection could get the buyer the house. It may also be waived if the buyer is confident the home is in good shape, if there is proof of a recent remodel, or if the buyer conducts enough of their own inspection and has the knowledge to feel satisfied with the condition and quality of the home.

For Buyers Who Are Financing, an Appraisal Contingency May be Required

An appraisal contingency basically states that a buyer doesn't have to purchase the home if it appraises for less than the asking price. Not everyone is deeply concerned about this value, especially if they aren't financing or if they really love the home, but for most people it's important to know they're getting good value for the money they're spending. Additionally, a bank or other lender will want to see that the home appraises for the selling price before they make the loan. Otherwise, the buyer will need to come up with additional money down, or the seller will need to lower the price. Any of those options can work to get the loan and the sale to close.

There Are Other, Less Common, Types of Contingencies

Technically, the buyer of a home could make the sale contingent on nearly anything they wanted to. They could ask that the seller leave the swimming pool or swing set, or even their pets. Most buyers won't do this kind of thing, but they certainly can if they want to. They just need to keep in mind that the more they ask for, especially if the requests are unique, the less likely it will be that the seller will accept their offer. That's especially true if there are other offers coming in, but buyers that make their sale contingent on too many things often struggle to find a seller who will work with them. A good real estate agent can help advise buyers on what types of contingencies should be included.

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