Contract Contingencies
Your questions about a property can be inserted into the contract as contingencies, facts or events that you must verify before you complete the purchase transaction. Contingencies dictate whether or not a sale will actually take place, and they can be written for any topic that needs further exploration. The seller does not have to accept all of your contingencies; they're often negotiated so that both parties are happy with the outcome.
For example, your offer to purchase is dated April 1, with a date of July 30 to close, or finalize, the purchase. The seller doesn't want to wait that long to sell the property, so responds by changing the closing date to June 1. You can agree to the new date or go back to the seller with another time that works better for you.
Sellers can also insert contingencies. What if you wanted to close on June 1, but the seller cannot sell until later? The seller would change the closing date, and negotiations would begin.
Contingencies aren't just questions you want answered. Instead, they are questions that must be answered
In some areas, attorneys draft the majority of real-estate contracts. In other areas, real-estate agents use “fill in the blank” contracts that have been prepared by attorneys and approved by Realtor associations and the state agencies that enforce real-estate laws. Most of the contracts used by agents include wording for contingencies that are most commonly used in the area, plus blanks to fill in the date by which the outcome of a contingency must be complete and reported to the seller.
Your Title Should Be Guaranteed
Contingencies that should be part of any contract include the guarantee that, at closing, the seller will deliver to the buyer a clear deed, one with no problems, and a legal right-of-way if the property is not accessible by public roads. Most standard forms have a clause that states the seller will give existing title information to the buyer or buyer's closing agent so that it can be shared with the person performing the new title search.
The Financing Contingency
A financing contingency should always be included if you depend on a lender to complete the transaction. This contingency is a statement that tells the seller what kind of loan you are seeking. It states the type of loan you will accept, but it does not dictate that you must accept those terms if better terms are offered to you. If you cannot get the loan and terms you disclose on the offer, you should have the option of backing out of the contract with no penalties.
Buyers sometimes attempt to insert an unrealistic financing contingency, planning to use it as a possible way out of the contract if necessary. For instance, you could insert a very low interest rate in the slot where you state the rate you will accept — one you know is not possible. When it isn't offered, you have the option of backing out of the contract. That tactic can throw up a red flag to the seller that your offer is questionable, so be realistic if you really want the property.
Your Rights to Inspect the Property
If your offer is for a structure, you should insert inspection contingencies. That might include a structural inspection, testing for the presence of radon, mold, lead paint, or other hazardous items, and inspecting for wood-destroying or other insect infestations. Contracts for commercial buildings will likely trigger specific inspections that vary depending on the type of structure involved. You'll find advice about inspections in Chapters 8 and 9.
A real-estate contract must be in writing to be valid, but it does not have to be in a specific format. You can draft your own contracts if you wish, but for your own protection, seek advice from a real-estate attorney before you present them to a seller.
Other Common Contingencies
Here's a list of contingencies that are commonly seen on an offer to purchase real estate.
Buyer's approval of the property lines and tract size after a survey is complete
Buyer's approval of topography mapping
Requirements that the property appraise for at least the contract price
Requirements that land with no sewer connections be approved for a septic system
Time to review and approve deed restrictions or restrictive covenants
Time to review and approve leases executed between the current owner and tenants
Verification that radon gas levels are below minimum standards
A contingency that states the buyer must sell another property in order to complete the purchase
Remember that every offer to purchase real estate is unique, so no single list can cover all of the possible contingencies you might require. Brainstorm to come up with all the what-ifs of your purchase to determine contingencies that might be important to you.
Contingency Roadblocks
Buyer contingencies sometimes result in further negotiations if the information that's discovered isn't agreeable to the buyer. Let's say a new boundary survey indicates that property lines are not where the seller thought they were, resulting in less acreage than the seller promised. The buyer will surely want a reduction in price. If radon levels come back above minimum standards, the buyer might ask the seller to install a radon reduction system. Sellers don't have to bow to buyer demands, but compromises are usually possible if everyone keeps a cool head during negotiations.
The statement “contingent on a survey,” doesn't mean a thing because it doesn't say what you expect to see on the survey. The statement “contingent on buyer's approval of property lines indicated by a new boundary survey,” is more specific. State what's important about the contingency. Get advice from an attorney if necessary.
Contingencies are for your protection. Use them as a tool, but try not to overdo it. Too many unreasonable contingencies send a message to the seller that you may be looking for a loophole, something that will let you back out of the contract if you wish. No seller wants to take a property off the market for an offer that's full of nitpicky contingencies. Get the answers to as many issues as you can
Purchases Contingent on Another Sale
You might find a property that you'd like to buy, but you can't move forward with the sale until you free up funds by selling another piece of real estate. When that happens, you can make an offer that's contingent on the sale of your property. Most sellers will accept contingency offers if they can continue to have their property on the market.
A contingency contract locks you into the deal and gives you some time to explore your financing options. Here's how it works. You prepare an offer as you normally would, bumping the closing date forward a bit. The length of time you bump it up depends on the estimated time you think it will take you to sell and close on your other property.
Your real-estate agent or attorney probably has a special form that can be used with the offer. It states that you must sell your existing property before you can close on the new one. It will contain a space to insert a time associated with a
Most sellers won't be inclined to accept a contingency offer if the property you are selling is not on the market yet or if you haven't at least made plans to get it there. Enhance your offer to purchase by telling the seller when you plan to list the property or begin marketing it yourself.
The time you have to make that decision varies dramatically by area. In towns where competition for properties is high, twelve to twenty-four hours might be a commonly accepted timeframe for the kick-out. In other areas, you'll see more time given, usually forty-eight to seventy-two hours.
The contingency form will also include a space for you to state how quickly you will close on the property if you move forward after being notified that the seller has another acceptable offer.
