Most Buyers understand that EVERY deal runs the risk of falling apart, based on a number of contingencies outlined in a purchase agreement. As agents, we do our best to ensure that things stay together and run smoothly, but not every transaction is created equal! Think of it like this...if and only if the terms of a stated contingency are met will the contract proceed as written. Here is a list of the most common contingencies:
Inspection
The homebuyer will be allowed to conduct a private inspection, at their sole expense, in an established timeframe from the date of seller acceptance of the purchase agreement. This is a fundamental part of most sales contracts, and it solidifies a Buyer's commitment to purchase the subject property. Upon completion of said inspection, the homebuyer is presented with 3 options: 1. Accept the property condition as-is, 2. Express dissatisfaction, and request a release from the sales contract, or 3. Request that the Sellers complete certain repairs at their sole expense or modify the purchase price to reflect such. This becomes another negotiating point before the sales contract is to proceed.
Financing
Without being able to secure the proper financing, a homebuyer will be unable to fulfill the terms of a purchase agreement, no matter the circumstances. Normally, a purchase agreement will state how long a prospective homebuyer will have to submit a mortgage application, and, ultimately, secure financing (typically 30-45 days). If after such a time, the Buyer cannot obtain financing, the purchase agreement becomes null and void, and both parties are released from the contract.
Appraisal
As is required with government-insured loans, once a Buyer is satisfied with their home inspection, their loan officer will order an appraisal to protect the interests of both parties. Fashioned in a very similar manner to that of a Market Analysis, an appraiser will compare a subject property to those in the same neighborhood with similar features, in an effort to establish a home's current market value. Once this number is obtained, it is cross-referenced with the sale price in the purchase agreement. If the appraised value comes in at or above the sale price, the terms of the purchase agreement proceed as usual, and a Buyer's mortgage application is submitted to underwriting for final approval. On the flip-side, if the appraised value is less than the sale price, it presents another necessary negotiating point. If a Seller is unwilling to execute an amendment to reduce the purchase price to appraised value, the Buyer will be unable to obtain financing, and the deal will fall apart.
Short Sale
"Subject to third party approval." - This is the red flag that points to a short sale contingency. Very simply, the Seller's bank is required to approve the sale before the terms of the purchase agreement are able to proceed as usual. Depending on how the Short Sale Addendum is written, various other contingencies, such as inspection, may occur before or after bank approval.
Of course, other various contingencies may be incorporated into a purchase agreement, but these are the most common in the current real estate market. Work with your agent to determine how your home purchase will be affected by the contingencies of a purchase agreement.
Inspection
The homebuyer will be allowed to conduct a private inspection, at their sole expense, in an established timeframe from the date of seller acceptance of the purchase agreement. This is a fundamental part of most sales contracts, and it solidifies a Buyer's commitment to purchase the subject property. Upon completion of said inspection, the homebuyer is presented with 3 options: 1. Accept the property condition as-is, 2. Express dissatisfaction, and request a release from the sales contract, or 3. Request that the Sellers complete certain repairs at their sole expense or modify the purchase price to reflect such. This becomes another negotiating point before the sales contract is to proceed.
Financing
Without being able to secure the proper financing, a homebuyer will be unable to fulfill the terms of a purchase agreement, no matter the circumstances. Normally, a purchase agreement will state how long a prospective homebuyer will have to submit a mortgage application, and, ultimately, secure financing (typically 30-45 days). If after such a time, the Buyer cannot obtain financing, the purchase agreement becomes null and void, and both parties are released from the contract.
Appraisal
As is required with government-insured loans, once a Buyer is satisfied with their home inspection, their loan officer will order an appraisal to protect the interests of both parties. Fashioned in a very similar manner to that of a Market Analysis, an appraiser will compare a subject property to those in the same neighborhood with similar features, in an effort to establish a home's current market value. Once this number is obtained, it is cross-referenced with the sale price in the purchase agreement. If the appraised value comes in at or above the sale price, the terms of the purchase agreement proceed as usual, and a Buyer's mortgage application is submitted to underwriting for final approval. On the flip-side, if the appraised value is less than the sale price, it presents another necessary negotiating point. If a Seller is unwilling to execute an amendment to reduce the purchase price to appraised value, the Buyer will be unable to obtain financing, and the deal will fall apart.
Short Sale
"Subject to third party approval." - This is the red flag that points to a short sale contingency. Very simply, the Seller's bank is required to approve the sale before the terms of the purchase agreement are able to proceed as usual. Depending on how the Short Sale Addendum is written, various other contingencies, such as inspection, may occur before or after bank approval.
Of course, other various contingencies may be incorporated into a purchase agreement, but these are the most common in the current real estate market. Work with your agent to determine how your home purchase will be affected by the contingencies of a purchase agreement.
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