A person’s offer to buy a home is conditional on certain things. Conditions are often worked into an offer to buy a home in order to protect the buyer. In a real estate contract, we call these conditions "contingencies." Your real estate agent should be able to help you foresee potential problems concerning your real estate purchase. If something goes wrong during the purchasing process, you want to be able to cancel your contract without being penalized (usually the penalty is losing your earnest money deposit). We’ve listed some of the most common contingencies used in contracts to buy real estate.
1) Being able to obtain financing. If you have not gotten pre-approved for a home loan, you want to put in your offer that you will only buy the home if you can afford it. And, if you’ve only gotten pre-qualified for a loan, you’ll still want to get this contingency. Getting pre-qualified for a loan does not guarantee that you’ll actually get that amount when it comes time to get the loan.
2) Being able to sell your current home. This contingency allows you to avoid paying two mortgages at the same time. Many sellers shy away from this contingency, especially if the home buyer is from the north (or another real estate market that is notorious for houses sitting on the market for a very long time without being sold). So, this one can be a major contingency for sellers.
3) Getting an appraisal for at least the purchase price of the home. If you get the home professionally appraised and your appraiser says that the home is not worth as much as you’re paying for it, you may want to reconsider buying it. Having this contingency allows you to opt out of buying the home if you would be overpaying for it.
4) Being satisfied with the home inspection. The home inspection contingency is similar to the appraisal contingency above. You don’t want to commit to buying a home and then find out that the home has a slew of major problems. Adding this contingency to your contract can keep you from buying a home with too many unforeseen repairs needed.