|
In an ideal world, a buyer would approach a seller
to purchase a home at full price and pay cash for the property.
Unfortunately, not every situation is ideal. With most purchase
contracts in real estate, the buyer and seller will write into the
contract contingencies that are designed to protect his or her interests
in the transaction. A contingency is a section that is inserted
into the purchase contract that allows either the buyer or seller a way
out of the contract if certain events do or do not take place. In
this section we will look at many common contingencies that are written
into contracts and examine how that may affect your ability to close on
the sale of your home.
Contingency #1: The sale of this home is
contingent upon the buyer qualifying for a new home loan within five
days of acceptance of this offer. Buyer's failure to qualify
within this period of time shall void this contract and the buyer's
earnest money deposit shall be returned in full.
As a seller, accepting an offer from a buyer that
is not yet qualified requires you to stop marketing your property and
halt the sales process until the buyer qualifies for a home loan.
My suggestion is to hold off on the purchase agreement until you have
conclusive evidence that your buyer qualifies. For more
information on having your buyer qualified,
click here. If you are eager and
are willing to take the risk of the buyer not qualifying, do not leave
the process open ended. By inserting a contingency like the one
above, you limit the amount of marketing time you could potentially lose
by forcing the buyer to take action immediately.
Contingency #2: The buyer has the right, at the
buyer's expense, to select a licensed and qualified home inspector
and/or other professionals to make inspections on the property...
Though this contingency is usually a lot longer in
length, the jest of this clause allows for the buyer to conduct a home
inspection. In some forms of this contingency, the buyer may request
that the seller completes certain repairs.
Though this usually does not force the seller to complete any or all of
the repairs, failure to do so could result in the buyer canceling the
contract and receiving his or her earnest money back. Expect to
see some type of inspection contingency in the contract.
Contingency #3: The sale of this home is
contingent upon the buyer successfully selling the property located at
________________ before the close of escrow.
If your buyer currently owns a home, it is very
unlikely that he or she will want to hold on to his or her existing
property while purchasing your home. In most cases, the buyer will
use the equity accrued in his or her existing home as a down payment for
your home. As a result, that person will need to sell the home
before being able to buy your home. Deciding whether or not to
accept an offer where someone needs to sell a home can be tricky.
There are many questions that need to be asked, such as: "Is it
currently for sale or have you not put it on the market?", "Is the home
overpriced for its area?", "Do homes sell quickly in your
neighborhood?", "How long does it take to close on a transaction
(assuming the buyer is from out-of-state)?" Other issues can crop
up during the process. Does that buyer need to sell his or her
home, is that buyer qualified for a home loan, and what happens to you
if your buyer cannot sell his or her home? One suggestion employed
by sellers that help to compensate for this additional burden on you is
to ask for a larger earnest money deposit and stipulate that all of it
(or a portion of it) is non-refundable. If your buyer is asking
you to take additional risks, you should have them take one too.
Contingency #4: The sale of this home is
contingent upon the buyer obtaining an appraisal no less than the sales
price of the home.
In some cases buyers will insist that this clause
is included in the contract. In other cases, it may be an
unwritten clause if the buyer is qualifying for a home loan. If
you have done your homework properly and priced your home fairly, this
clause should not be an issue. If you have not, you could run into
trouble. If the buyer is financing the purchase of the home, more
likely than not his or her lender will require an appraisal on the
property. That appraisal is used as part of the qualifying process
because the lender will base the loan amount on the sales price or
appraised value, whichever is less. If the appraisal is less, you
may be forced to lower the sales price or require the buyer to come in
with additional money to cover the difference (which they probably do
not have and would not agree to do).
Contingency #5: The buyer and seller agree to
allow the buyer to take pre-possession of the property ___ days before
the close of escrow.
This contingency allows a buyer to occupy a
property prior to closing on the transaction. In cases where a
buyer is relocating from another state or where the buyer's lease is
expiring, he or she may be under the gun to move before the lender can
complete the transaction. As a Realtor, I do not like my seller's
accepting this type of contingency unless certain provisions are
provided. The liability a seller assumes by allowing a buyer to
take possession before closing on the transaction is similar to that of
a landlord. If you are considering this type of arrangement, be
sure to include provisions that require the buyer to have insurance to
cover personal belongings, injuries, and other issues that may crop up.
Include provisions that address how you are to evict the buyer if the
transaction does not close (unless you are looking for a tenant).
Check with your insurance agent to make sure that your insurance policy
allows for this type of situation. If it does not, you may have to
buy additional coverage in the event that someone is hurt or if
something is damaged.
|
