Buying a home can be a source of long-term stability and financial improvement, but there is plenty of risk involved as well. You generally need to make an offer after possibly only seeing the place one time. Competitive markets in recent years have led to people needing to make aggressive offers in order to have any degree of success.
It can feel intimidating to offer a large amount of money for a property that could have issues you didn’t have a chance to identify. The good news is that carefully reviewing documents provided by the seller before you make an offer and including the right contingencies in your offer paperwork can help protect you from getting trapped in an offer for a property you no longer want.
How contingencies work when purchasing real estate
A contingency in an offer essentially says that if certain conditions aren’t met, you will not proceed with the sale. In theory, you can back out of any purchase prior to signing the closing paperwork, but you will likely lose your earnest money unless you comply with the contract terms when rescinding your offer.
Inspection contingencies are common. The language of an inspection contingency states that that value of your offer only applies if the property is in as good of condition as it appears to be. If an inspector notices defects that you did not spot and that were not in the seller’s disclosure, the presence of those defects will likely give you an opportunity to back out of the sale.
The same is true for an appraisal contingency. If an appraiser for the bank determines that the property is not worth the price that they would finance for the purchase, you can get your earnest money back even though you won’t complete the sale. Other contingencies might be necessary in some circumstances as well. Some people will include a sale contingency if they must sell their home in order to complete the purchase of a new property.
How do you maximize the protection of purchase contingencies?
In order to prevent yourself from making a major financial mistake when buying real estate, you want the best possible professional help. A real estate professional can help you schedule a viewing, locate appropriate properties and possibly negotiate with the seller.
A lawyer can help you draft purchase offer documents that protect you and can also educate you about your rights and the legal and financial risks involved in various real estate dealings. That help can prove invaluable as you move forward with your plan to purchase a new property.