A Guide To Various Home Buying Contingencies

A Guide To Various Home Buying Contingencies

How Contingencies Can Protect You When Buying a HomeThe paperwork involved in buying a home can be overwhelming, and there’s often a temptation to glance over it without actually knowing what’s included. Purchasing contracts are designed to meet the needs of both buyers and sellers, and in many ways include protections for both parties. 

One of the more common ways that home buyers can find their own sort of safety net is through contingencies. Let’s explore the three most common types of home buying contingencies and how they work.

Things To Keep In Mind

Most purchasing contracts will include contingencies for the following three areas in an effort to protect the buyer: inspection, financial, and appraisal. The basic idea behind a contingency is that if something goes wrong, the buyer has a way out instead of being forced to purchase the home anyway.

The inspection contingency is designed to allow the buyer to negotiate based on the results of the inspection report for their Edina home and completely walk away if needed. Imagine the home needs a new roof and the seller isn’t willing to lower the home price or make the repairs before the purchase. The inspection contingency gives room for the buyer to terminate the deal or create a starting point for financial arrangements that will handle the roof replacement.

A financial contingency is a huge point to consider for buyers who might have less than perfect credit, as it ensures they are not in a binding contract should their financing not work out. If their loan is completely denied or they are approved for less than they need, this contingency waives the legal responsibility of the buyer to purchase the home.

An appraisal contingency can be closely linked to the financial contingency, in that if the home is appraised at an amount different than the sale price, the buyer has the room to negotiate the terms or simply walk away. A higher appraisal could mean the buyer is responsible for paying more for the home, and this can create lending problems.

Why It’s Important

Knowing how home buying contingencies can help to protect the buyer impresses upon many just how essential they are. If certain contingencies are waived, there’s a potential for disaster to occur. 

There can be a few exceptions to the rule when it comes to these recommendations. Individuals who purchase a home in cash probably won’t find a need for the financial contingency, and some properties that are tear-downs or will be major fixer-uppers might not need the appraisal or inspection contingency.

When in doubt, always check with a real estate professional to make sure the purchasing contract includes everything possible to protect you.

Ground To Stand On

If nothing else, home buying contingencies give buyers some footing when it comes to negotiations before the final sale. These elements of a contract can be thought of as starting points to discuss repairs and pricing, and will almost always allow for the buyer to back out if things just don’t pan out in a way that works for them. 

Remember to review your contract carefully and make sure to understand your contingencies before signing.

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