Contingencies to Include When Putting In An Offer
Obviously, sellers prefer real estate offers without any contingencies. The key to getting your offer accepted is being fair and keeping contingencies to a minimum. You do not want to make excessive demands, and become a difficult buyer. While you generally should include some of the following contingencies, you may not want to include all of them. Here are some of the most common contingencies.
Home Inspection: A home inspection is not required, but recommended. In your offer, include that the home sale is contingent on a satisfactory home inspection – a thorough examination of the house to check for hidden problems. Areas examined by the inspector include the roof, attic, ventilation system, drainage, doors, windows, heating and air system, plumbing, electrical system, and foundation. After the inspection, you can ask the seller to make needed repairs. If he or she does not comply, you can walk away from the sale.
Financing: If your offer states that the sale is contingent on your ability to secure a mortgage loan, the seller might pass on your offer. The seller is undoubtedly eager to sell the house – therefore, he or she may be unwilling to take a chance on someone who may or may not qualify for a home loan. Have your financing in place before you submit an offer, and include your pre-approval letter with your offer.
Earnest Money Deposit: This good faith deposit shows that you are a serious buyer. Submit your earnest money deposit with your offer, and if the seller does not accept your offer (or if you withdraw your offer due to reasons permitted in the contract), you will get your money back. If you proceed with the sale, the earnest money is credited to your closing costs.
Expiration Date: Always include an expiration date with your offer. With this contingency, the seller must respond to your offer within a certain number of days or the offer expires. Choose a length that you’re comfortable with.
This inclusion protects you in the long run. If you don’t hear back from the seller, you may assume that your offer was not accepted, and you may bid on and purchase another house. However, if you fail to include an expiration date with a prior offer, the seller could legally accept your offer months late, at which time you’re obligated to purchase the house or lose your earnest money deposit.
Disclosures: The seller is obligated to disclose certain issues with the property, but is not obligated to make repairs. Laws regarding what a seller must disclose vary by state. However, most states require sellers to disclose any major repairs or issues that have occurred within the past five years, such as mold removal, water damage, or electrical or plumbing problems. Additionally, sellers must disclose any existing hidden issues.
Maybe a window or the roof leaks during heavy rain. Or, perhaps a few of the windows may have broken locks, or the electrical outlets in a particular room do not work. To protect yourself, make sure that your offer is contingent on satisfactory disclosures.
Sellers complete a disclosure form during the negotiating process. After reviewing this form, you can ask the seller to fix issues or adjust the sale price to compensate for these issues. If the seller agrees to make the necessary repairs, but doesn’t fulfill his or her end of the contract before closing, you can legally pull out of the sale.
Walk-Through: In your offer, state your wish for a walk-through on the day of closing. This way, you can conduct a final inspection of the house. If the walk-through reveals issues not previously disclosed – perhaps a hole in the wall, a broken appliance, or a water leak – you can legally postpone or cancel the home closing.
Earnest money can be very confusing to buyers. Earnest money is not just used in Real Estate, it is used in plenty of other industries. Here is a great article that explains further in depth: What is the Earnest Money Deposit? as well as a video on How Earnest Money Deposits Work