Raise your hand if you have heard the term “seller’s market.” It’s been used lately — a lot. In general, when we say it is a seller’s market, it means home inventory is low, the demand for homes to purchase is high, and the seller most likely has (or will have) multiple offers to choose from. While this is super exciting, there may be contingencies attached to the offers that need to be considered. Understanding what these mean can help you determine which offer to accept.
The first thing you need to know is that real estate contingencies are common, and they are intended to protect the buyer from unforeseen issues. Sounds amazing for the buyer, right? What can happen if these don’t exist? Well, without the contingencies in place, the buyer can be forced to exit the sale and is responsible for any financial costs incurred by the seller, including the forfeiture of their deposit. Ouch, for both parties — the buyer loses out on a new home and the seller has to find a new buyer.
Let’s take a look at the most important (and common) contingencies to ensure your sale goes through without issue.
- Home Inspection Contingency – This one shouldn’t be a surprise — the buyer wants an inspection to be secure in their purchase. Usually, this must be performed within seven days and then removed. The inspection will address any safety, fire, mold, well/septic, structural, geological issues.
- Appraisal Contingency – Ensuring that the value of the home is in line with the price offered is essential and can be added in conjunction with the lender. A professional appraisal will determine fair market value.
- Final Loan Approval Contingency – We recommend pre-approval, given how tricky the load process can be. This contingency protects the buyer in the event they are unable to obtain final loan approval. It may also include appraisal, title, loan rate and terms, in addition to the final loan approval.
- Sales of Current Home Contingency – Buyers may be moving from one house to another or relocating. In a fast-paced market, a buyer may make an offer on a new home before their current one has sold. Understandable. This contingency protects the buyer from having to complete the new sale until their home has sold.
- Title Contingency – Life can be tricky and ownership is not always cut and dry. This contingency protects the buyer if the seller does not have the “right” to sell the home due to unforeseen ownership issues.
- Property Contingency – Much like our inspection contingency listed above, this relates to the condition of the home. In particular, the buyer will request a final walk-through, ensuring the property has been maintained during the escrow period.
This list might seem a bit daunting, but be aware that contingencies are part of most real estate contracts. As you review buyers’ offers, make sure to consider both the kind of contingencies and how long before the buyer must remove them.