What you need to know about real estate contingencies, from inspections to financing.
Contingencies play a crucial role in real estate transactions, ensuring that specific conditions are met before the deal moves forward. These conditions provide both buyers and sellers with options to exit the transaction if certain requirements are not satisfied. Here’s everything you need to know:
What do contingencies do for you? Contingencies protect all parties involved by allowing an exit strategy if issues arise. Cash buyers typically have fewer contingencies, focusing mainly on inspections, disclosures, and title clearance. Those obtaining financing have additional contingencies, including appraisal and loan approval. Here are the types of contingencies and key details you need to know:
Inspection contingency. A home inspection ensures you know exactly what you’re getting into. Depending on the property, additional inspections—like pool, roof, termite, or sewer—might be a good idea. A customized inspection plan can help you spot potential problems before they become expensive headaches.
Disclosures you need to review. Sellers and agents provide disclosures that give you a deeper look into the property’s history. You’ll learn about past repairs, expansions, or even whether someone passed away in the home. If there’s an HOA, you’ll also get details on its rules and fees. The more you know upfront, the fewer surprises you’ll face later.
Checking for a clear title. A title search confirms that the property doesn’t have unpaid liens, code violations, or legal disputes. You’ll also find out if there are easements, which means someone else has legal rights to use part of the property. Understanding these details helps you avoid issues down the line.
Appraisal contingency. If you’re financing, your lender will require an appraisal to confirm the home’s value. If an appraisal comes in lower than the purchase price, you may need to renegotiate or cover the difference. In rare cases, an appraisal might even come in higher, giving you instant equity.
Financing contingency. Even with a pre-approval, financing can hit roadblocks. If something changes with your financial situation or the property itself, you’ll need proof that you can’t secure the loan to back out under this contingency. It’s not a loophole because you need to show real documentation.
Can you get your earnest money back? If you cancel escrow for a valid reason, you can usually get your earnest money back. However, some sellers may push back, which can slow down the process. Acting in good faith, sticking to deadlines, and working with a skilled agent will help ensure a smooth resolution.
Contingencies are there to protect you. Understanding how they work gives you the power to make informed decisions and move through the home-buying process with confidence. If you have questions or need guidance, please reach out. You can call me at +1 858-461-9665 or send an email me to sean@mysddreamhome.com. I look forward to hearing from you.
