Home Buyer's Guide - closer look at...
Contract Contingency Checklist
Contingencies are your safety net in a transaction. Properly reviewing a home takes time and money - you don't want to proceed unless you've got a contract that gives you an "out" if you find a problem.
A home purchase contract should include contingencies to protect against uncertainties and allow the buyer the time to complete the required checking and other tasks prior to closing. All of these contingencies should be included.
Every home purchase contract should be expressly contingent upon review and approval by an attorney. Many states provide for an automatic review period regardless of the specifics of the contract.
The contract should be contingent upon the purchaser obtaining a mortgage commitment within a set period of time. The contract generally stipulates that the loan should be at "market" rates and terms - so the buyer can't be compelled to accept an unfair loan if that is all that is available.
The contract should allow the buyer a reasonable period of time to arrange for required inspections. The exact inspections necessary may vary with area, but typically include a general home inspection (always!), termite/pest inspection, and a radon test.
This is partially covered with a financing contingency - since the buyer will not obtain a mortgage if the property fails to appraise. Nevertheless, it is sometimes worth including a separate contingency - if, for example, the buyer does not require a mortgage but wants the appraisal anyway.
Repairs and cleanup.
If the purchaser's willingness to buy is based upon certain action by the seller - making a repair or removing excessive garbage or debris, for example - the contract should contain an express contingency to that effect.
Sale of buyer's home.
Some contracts are contingent upon the sale of the buyer's home to another party. While it is often difficult to get a seller to accept this type of condition, a buyer who cannot otherwise afford to proceed has little choice but to try.
Some transactions require special conditions. For example, if the home needs a significant work the buyer may want a contingency period to get pricing from contractors.
A Red Flag
Beware of any seller who refuses to allow reasonable contingencies - he or she is probably trying to hide something. This particularly applies to contingencies covering inspections. A reasonable seller has no cause to object to standard inspection contingencies.