RENT OWN SELL
Newyork
RENT OWN SELL
Newyork
You might have dealt with official documents all your life, but it is not every day that you have to deal with a home purchase agreement. For a layperson, the deal is even more daunting given they’ve had no prior exposure to these types of real estate documents.
While there are many things to look at in the purchase agreement, one important section to know about is the provision that addresses purchase contingency.
Buying property involves making an offer to the seller. The seller is likely to receive several offers on the property. Upon examining the offers, the seller accepts the one he deems most reasonable. At this stage, the buyer and seller enter into a formal purchase agreement.
The purchase agreement includes the property address, the contract price of the house, and the total earnest money received. It also includes the terms of the sale, such as when the deal will be finalized and through which channels money will be transferred for the transaction. Home purchase contingencies are also incorporated in the agreement in case certain aspects of the agreement are not met.
Let’s discuss purchase contract contingencies and the most common types.
A contingency is a term attributed to a set of circumstances that could possibly happen. In real estate, a contingency is defined as the status of the deal when the seller has accepted the buyer’s offer for the sale of the property, but the transaction is subject to certain conditions that must be fulfilled before it’s finalized.
The purpose of including contingencies in the agreement is to offer an option for canceling the agreement early without being subject to adverse consequences for doing so. It is a legal way to come out of the deal without having the fear of penalty. However, it is worth mentioning here that if you decide to walk away from the deal for conditions not explicitly stated in the purchase contract, you will have to face the consequences of it.
In simple terms, purchase contract contingencies are the conditions that must be met in order for the deal to close. For example, if the seller told the buyer that she will get basic repairs done before the scheduled closing day, it would be a good idea to add the clause as a contingency in the purchase agreement.
This will help ensure that all the maintenance has been completed before the parties reconvene at the table to sign the closing documents. If the seller fails to add this as a contingency in the agreement, the buyer may decide not to buy the house and would have the right to be reimbursed their earnest money.
From a legal perspective, there are no limits for the number of contingencies that can be added to the purchase contract. You can attach as many contingency documents as you want. Although the seller probably wouldn’t eagerly accept offers with several contingencies. You should know that the law does not forbid you from doing so.
Purchase agreements are contingent on one or more of the following circumstances:
A home inspection contingency is a popular contingency included in purchase contracts. Buyers usually make an offer without inspecting the property meticulously. The seller is supposed to disclose all known facts about the property.
To confirm that the house is, in fact, in the condition described by the sellers. Buyers can build a home inspection contingency into their purchase contract. This contingency would state that if the house did not meet the expectations documented by the seller.
The buyer can withdraw their offer and cancel the deal without incurring any financial penalty. In such situations, the earnest money is returned to the buyer. In another scenario, the buyer may have the property inspected before making an offer and mention the necessary repairs to the seller.
The seller agrees to make the repairs before the house is sold. This now becomes the contingency that should be mentioned in the agreement. Before signing the closing documents, the buyer may have a final walk-through of the house to confirm that the required work was done. If repairs are still pending, the buyer can opt to not finalize the deal.
Read Also: Best Home Inspection Services in NYC
The other contingency most often included in purchase agreements is a mortgage financing contingency. In a real estate deal, there are three parties involved: a seller, a buyer, and a lender. To complete the deal, all three of them have to agree to the terms and conditions of the agreement.
Buyers usually finance their home purchases through the lender. They get the pre-approval before making the offer, but it still doesn’t guarantee that the loan will get approved. Therefore, before making an offer, buyers can include a mortgage contingency in the agreement. Of course, the seller may accept or reject the offer with a mortgage contingency.
Another common purchase agreement contingency is the appraisal contingency. An appraisal is the property’s estimated market value. Sometimes when sellers do not set the right sales price for the property, they end up asking for more than the market value. In that case, an appraisal contingency often comes into play.
The point to takeaway here is that the lender won’t approve a loan for more than the market value of the property. In case the appraisal report concludes that the home is worth less than the contract value. The lender may reject or delay the loan. Therefore, buyers can acknowledge this fact in advance and can then add this clause to the agreement.
The purchase agreement is the legal document that includes the terms and conditions of the real estate transaction. These clauses are legally binding when the agreement is signed. So if someone decides to walk away from the deal. He has to face the consequences which could mean losing earnest money in most cases. To avoid this situation, purchase agreement contingencies are built in the agreement.
