Marsha, I am currently selling my home. A buyer made an offer and after negotiations we’ve settled on a price and closing date. It seems like there are quite a few buyer contingencies that need to be signed off. What exactly are all of these contingencies?
Contingencies are conditions that must be met and approved between the time you open and close an escrow, and you’re right, there are a lot of them! To begin an escrow the buyer puts a good faith deposit money into the transaction. If a contingency is not met, and it’s no fault of the buyer, the buyer may cancel the sale and have his money returned.
So what are the contingencies? For the most part they will be on the buyer’s side. A seller could have a contingency in the contract which states he needs to find a replacement home before he’ll sell his current home. However, unless we are in a super-hot seller’s market (we aren’t) that’s not a good condition for the seller to demand. Most buyers won’t wait 60 to 90 days while a seller locates a suitable replacement home.
Many conditions and their corresponding time frames are written into our residential purchase agreement (RPA). All real estate is negotiable and the principals can change or add to these default contingencies. The main contingencies will be a physical inspection, an appraisal and a loan contingency. Each condition is tied to a time period and a date for removal.
Within the time frame of the physical inspection contingency, the buyer will have the general inspection done. When the seller signs the RPA, he agrees to permit the buyer as many inspections, within the contractual time period, as the buyer wishes to purchase. The buyer could have a soils, roof, pest, pool, and mold or radon inspection. He could pay a surveyor to give him exact boundaries.
If any of these inspections reveals an issue that the buyer doesn’t accept and the seller doesn’t want to fix, then the buyer won’t sign off on the physical contingency and the escrow will be canceled. When there are issues with any contingency the principals can always work together to negotiate away the problem.
Other important buyer contingencies are approving the seller’s disclosures regarding the property, getting clear title, obtaining homeowner’s insurance, and approving the natural hazards disclosure. If the home is a condominium, the buyer must approve the homeowner’s association documents and the budget.
Contingencies and conditions make perfect sense. They are truly a buyer’s friend. There is no return policy when you purchase a house. Once escrow closes the buyer owns the home and lives with house’s condition, warts and all. It’s to everyone’s benefit that the buyer knows exactly what he is getting. Contingencies help to make sure of that.