We are almost there, Trust me! In this installment, we want you to know the three main contingencies that would allow you to leave a contract and get your earnest money back.
If you want to see the previous installment in this series, see Part 7 at this link.
Part 8: The Three Contingencies
The Three Contingencies remind me of the Three Sisters, or the three agricultural staples of north America, winter squash, maize and beans.
Yep. I’m a gardener. Can you tell?
But, the three contingencies are also healthy and work together to protect you, the buyer.
The Inspection Contingency is very broad, to the surprise of many. Basically, if you don’t like almost anything you find wrong and if you report it in the first 10 days of the inspection period, you can exit the contract and get your earnest money back.
We typically tell folks that they should think beyond just plumbing and electrical. Take the time to knock on neighbors’ doors and ask them what they think of the street. Drive by on a Friday night and crack the window to see if the neighborhood gets loud –this is important if you live downtown and in the age of AirBnB.
At the end your inspections, will will present to the seller a list of items you want fixed, or a notice that you are leaving the contract.
Two things to note. First, if you don’t respond in the 10 days, it is the same as saying you approve of the sale going ahead. Second, if you respond on day 5, you don’t get to report anything you find after that. You missed your chance.
The Loan Contingency basically allows you to leave the contract if your lender decides that you can’t get a loan for some reason.
However, if you wait until you are just about to close on the house and the lender finds out that, for instance, you did not report your debt and income properly, then you could lose your earnest money.
It’s another reason why you need to make sure you disclose all of the important debt and income information to your mortgage broker right up front.
The Appraisal Contingency allows you to get out of the loan if the home does not appraise for the sales price. Basically, your lender wants to know what they think the house is worth. They don’t care what you agreed to with the seller.
If the appraisal comes in “above value,” it just means that the appraiser thinks the house is worth more than you are paying for it. Congrats.
If the appraisal comes in below value, then one of four things has to happen:
- The seller drops the price to the appraised value
- The buyer makes up the difference in cash.
- The seller and buyer meet somewhere in the middle.
- You walk away from the deal.
In a seller’s market, don’t expect the seller to drop the price much, if at all.
Next up: The closing process.
