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Contingencies in real estate contracts

In real estate contracts the contingency is a common element. Contingencies are clauses in a contract that give either the buyer or seller a way to get out of the contract if certain conditions or timelines aren’t met. A commonly used example is that of a buyer making an offer on a new home before selling his existing home. The buyer needs to sell his present home before being able to get financing on the new one. So he makes his offer contingent upon the sale of his existing home. There will always be a time period associated with such a contingency. If the buyer is able to get his present home sold within that time period, the deal can go forward. But if he fails to sell within the specified time period, the seller has the option of getting out of the deal. In many cases, sellers won’t accept this kind of contingency, because they will most likely feel that they can find another buyer capable of closing the deal without needing to sell another home first. But new home builders are often willing to accept an offer contingent upon the sale of an existing home.

Every contract can be unique. The possibilities for contingencies are virtually endless. Some of the more commonly used contingencies would include:

Financing
Contingencies that depend on the buyer being able to obtain financing are very common.

Home Inspections.
Probably the most common type of contingency is the “contingent upon satisfactory completion of inspection”. There are any number of specific types of inspections for which a contingency might be included in a contract. Some of the more common would include inspection by a qualified home inspector for hidden defects, pest inspections, water and sewage system inspections, inspections dealing with the presence of radon or mold, etc.

Appraisal
It’s not unusual for a buyer to have a contingency that allows for a formal appraised value at or above purchase price. Since lenders will nearly always want an appraisal performed too, sellers usually don’t have a problem with this.

Remember, just like everything else in real estate contracts, contingencies are negotiable. Always take care before signing that you are comfortable with all contingencies included in your contract. Likewise, take time to think about what contingencies you might like to have added.

Homeowner Protection Plans
A Home Protection Plan pays repair or replacement costs for the mechanical systems and built-in appliances that break down in a home. Protection Plans can be purchased by either the buyer or seller. When the seller is paying for the Plan, it is usually paid for and goes into effect at closing. The coverage period is normally one year. There are a lot of companies offering home protection plans, and coverage of individual policies can vary widely. Usually, central heating and air conditioning systems, electrical, plumbing and major appliances are covered. It’s important that you read the policy closely and understand what is and is not covered. The cost for a one year home warranty typically runs between $350 and $600, depending on the size of the home and the specific types of coverage. In addition to the policy premium, there is normally a deductible of $50 – $75 when making a repair claim.

There are some very good reasons to pay for a home protection plan when selling your home. Providing a home protection plan can help set your home apart from the competition. Buyers will appreciate having a warranty and will feel more comfortable about buying your home without worrying about hidden problems. Providing a plan can even result in a higher price, offsetting the cost. Certainly it can make it easier for a buyer to make an offer. These assets make the home protection plan an excellent marketing tool.

In addition to marketing advantages, you could also avoid getting sued down the road. When a major appliance, heating or air conditioning system goes bad shortly after a home is sold, it’s not uncommon for the buyer to blame the seller. Unfortunately, this can and does lead to lawsuits. Providing a home protection plan with the sale of your home can go a long way toward preventing these types of suits. In some areas where lawsuits are particularly common, almost all homes are sold with a home protection plan included.

If you are buying a home and it doesn’t come with a home protection plan, you may want to consider paying for one yourself. The first year after buying a home is a time when most people don’t have a lot of cash on hand to cover problems that might arise. Having a one year home protection plan in place can provide peace of mind during this time, and if something does break down, could really save your budget.

An escrow agent is used to assure your home closes on time and the process goes smoothly. When money is held by a third party in a transaction between a buyer and a seller, it’s in escrow. An everyday way to understand what an escrow company does is to think of how you might use PayPal for Internet purchases.
The escrow agent makes sure that the terms and conditions of the agreement between the sellers and the buyers are completed prior to the sale being completed. Whether or not it’s your first home, we’ll educate you throughout the process. These are the legal documents that escrow companies usually look for:

Tax statements
Fire and other insurance policies
Title insurance policies
Terms of sale and any seller-assisted financing
Requests for payment for various services to be paid out of escrow funds
Loan documents

You’re ready to close when each step of the complete in escrow process. At this time, all payments and fees for inspections, title insurance and real estate commissions are paid out. The home’s title is given to you and title insurance begins per the policies of your particular escrow process. At the close of escrow, in an acceptable form to the escrow. I’ll keep you updated on the through the procedure.

The Escrow Holder Will:
Prepare escrow guidelines
Petition title search
Comply with lender’s requirements as specified in the escrow agreement
Receive funds from the buyer
Prorate interest, insurance, tax and other payments according to instructions
Record deeds and other documents as instructed
Request title insurance policy
Close escrow when all terms of agreement of seller and buyer are met
Disburse payments and finish instructions

The Escrow Holder Won’t:
Advise you – the escrow company has to remain an impartial, third-party status
Dispense opinions about the outcome of your taxes

Mortgage Escrow Account
A Mortgage Escrow Account is started to make payments for rolling fees while there is a loan on the house. Usually, the home buyer makes a payment at closing and also makes regular deposits through their monthly mortgage payment to fund the Escrow Account.

Once you’re at ease with the escrow process, you can be a better buyer.

Earnest money shows you’re serious.
Typically when an offer to purchase a home is made, you, as the buyer, will also pay an “earnest money” deposit. This deposit shows the seller that you’re serious about the offer to purchase the property.
The amount of earnest money deposit varies based on the type of property being purchased and local market conditions. As your real estate professional, we’ll help you determine the appropriate amount to pay as an earnest money deposit.

The sales contract will dictate who holds the earnest money. Usually the seller’s real estate agent will deposit the earnest money in a trust or escrow account until closing. At closing, the earnest money is applied to the purchase price.

In the event the sale doesn’t close, the sales agreement generally spells out the conditions under which you would forfeit the earnest money. Generally if the seller meets all the terms of the contract, the seller will keep the earnest money. If the seller does not meet the terms of the contract, you, as the buyer, may receive a total or partial refund of the earnest money.

Why you should get an Inspection
Whether you are buying or selling a home, you should have a professional home inspection performed. A home inspection will look at the systems that make up the building such as:

• Structural elements, foundation, framing etc
• Plumbing systems
• Roofing
• Electrical systems
• Cosmetic condition, paint, siding etc

If you are buying a home, you need to know exactly what you are getting. A home inspection, performed by a professional home inspector, will reveal any hidden problems with the home so that they may be addressed BEFORE the deal is closed. You should require an inspection at the time you make a formal offer. Make sure the contract has an inspection contingency. Then, hire your own inspector and pay close attention to the inspection report. If you aren’t comfortable with what he finds, you should kill the deal.

Likewise, if you are selling a home, you want to know about such potential hidden problems before your house goes on the market. Almost all contracts include the condition that the contract is contingent upon completion of a satisfactory inspection. And most buyers are going to insist that the inspection be a professional home inspection, usually by an inspector they hire. If the buyer’s inspector finds a problem, it can cause the buyer to get cold feet and the deal can often fall through. At best, surprise problems uncovered by the buyer’s inspector will cause delays in closing, and usually you will have to pay for repairs at the last minute, or take a lower price on your home.

It’s better to pay for your own inspection before putting your home on the market. Find out about any hidden problems and correct them in advance. Otherwise, you can count on the buyer’s inspector finding them, at the worst possible time.

Many States, Counties and Cities offer different down payment assistance programs. Follow this link to review the programs available in Tarrant County Texas