If you are a buyer and have found the perfect home for your family, the seller will ask you to make an offer on their property. Generally, the offer is presented through a contract, known as a home purchase agreement. This document holds great importance during the home buying process as it outlines many critical points that directly affect the outcome of the real estate transaction.
The standard home purchase agreement includes a list of conditions that are required to be fulfilled before the deal is closed. It covers issues such as insurance, inspections, financing, and others. These conditions are known as contingencies. You should know about the common contingencies found in most home purchase contracts so that you may include them to protect yourself if a certain circumstance or event takes place.
- Home Inspection
Home inspection is possibly the most common contingency found in a home purchase contract. It provides the homebuyer with a legal exit strategy if they are unhappy with the home inspection results uncovering structural problems. Minor defects, like a leaky pipe in the kitchen or a broken window, can be easily repaired by the homeowner before they hand over the keys to the buyer. However, some problems may be more severe and costly to repair, like a major foundation crack or a leaky roof. In such situations, the buyer may want to look for another house, and including home inspection contingency in the home purchase agreement will allow them to walk away from the deal.
- Sale of Current Home
A sale of current home contingency allows you to make the sale conditional and dependent on whether you are able to sell your current home. There is a high chance that you are relying on finances from selling your existing property to purchase the new home. However, certain situations compel the buyer to back out of the deal, leaving you financially deficient and legally bound to purchasing the new home.
You should keep in mind that if you are in a competitive housing market, the sale of current home contingency may work against you, and avert a seller as they may have other options at their disposal.
- Financing
Most homebuyers depend on mortgage loans to purchase their new home, and make the offer based on the amount they have pre-approved from the lender. However, between the home purchase contract and closing, there is a chance that the lending institution may find an issue with the application and deny your mortgage. If this happens, having a contingency that gives the buyer a way out of the deal can save them from legal obligations. This is exactly what a financing contingency does.
- Clearing Title
A title examination is generally performed to get a clear picture of who previously owned the home and who owns it now. In other words, it provides a complete history of ownership of the property. During a home purchasing process, an attorney or title company will conduct a title check to ensure there are no liens, disputes, or any third party claims on the property. While some problems can be easily resolved before the closing, others can be difficult and time-consuming. If you include title contingency, you can cancel the contract in the event of unresolved title issues.
Including contingencies in your home purchase contract can save you from many legal implications during the home buying process. If you want to have an experienced Naperville real estate attorney to draft or review your home purchase contract, you may contact the Fitzgerald Law Firm, P.C. at (630) 946-6060 to discuss your case.