Q: What are contingencies?
A: Standard contingencies in an offer to purchase real estate typically include the right to review title, inspect the property and review the seller's disclosure packet.
Contingencies can be a somewhat misunderstood concept to many new home buyers. I hear it all the time, where as in a tough market to get an offer accepted, you will see many buyers come in with offers already having removed contingencies. Is that a good practice?
Well it depends really on the situation and condition of the home. We are fortunate enough in Silicon Valley to get the gist of a home upfront before even offering any monetary funds let alone an offer.
Although it can mean the difference between a hard and fast deal, read more below to fully understand if it's the right time and situation to remove contingencies upfront, or take the standard contingency removal route.
Q: What is the defined date for removing contingencies?
A: The contingency removal date is defined in the initial offer when a buyer is will remove contingencies and commit to a firm intent to close escrow.
If a buyer had their mind set on a home and don't want to neglect their 'due diligence' as a smart buyer, you can always adjust contingency removal deadlines to 'up your offer' and appear as slightly more interested than another offer on the table. For example, instead of taking the standard 10 days to conduct all their desired inspections and review of the reports on file, a serious buyer may need only 7.
A well qualified buyer may have been told by their lender, whom has proactively ordered the appraisal on the property right as acceptance of the offer was sent to them the next, that they can get full loan approval in 14 days versus the standard 21 days; including only 10 days to get an appraisal report in their hands versus the normal 17 days.
Q: What happens if the buyer decides to cancel the contract after removing contingencies?
A: The buyer may be obligated to move forward with the purchase after removing contingencies, and if both parties mutually agree to end the contract they still may be obligated to forfeit their earnest money deposit and be held responsible for other liquidated damages by the seller.
It's a tough situation to be in. And as an experienced Real Estate Consultant it can be a common hurdle in the process of finding your dream home. Life happens, and situations or conditions don't turn out to be ideal in moving forward in the transaction. Personally, having an open channel of communication between all parties of the transaction are a key component of successfully closing a deal and preventing mishaps like these. Having over 21 years of experience, I can't say it hasn't happened. And having a trusted, experienced and organized real estate agent on your side will normally keep you informed of any upcoming hurdles like these, as well ensure we are fully signed off with your lender before removing contingencies.
See more of this article by The Balance below, and feel free to reach me here with any of your personal transaction questions, I am here to help!