In the excitement of the residential property buying process some neophyte home buyers have a tendency to hurriedly slap together an offer without giving proper consideration to the incorporation of well-worded, effective contingencies or conditions which can protect them against extremely serious potential ramifications.
The vast majority of residential real estate property transactions proceed rather smoothly, with only relatively minor obstacles to overcome. However, there are some which get hopelessly bogged down in a number of previously unforeseeable negative revelations, and unless the contingencies have been drafted to protect the buyer, the result can be a legal minefield.
Some buyers take the step of writing an offer before they have sold their previous home, or they may have jumped the gun on a "pending sale" expecting their house sale to close on time and precisely to expectations. This is a major problem as unless everything falls completely in line you could be looking at making two mortgage payments at once, let alone not be able to come up with the down payment as you were expecting to derive it from the sale of your previous home. Both of these prospects can spell financial disaster, and thus these highly critical "housing chain" contingencies must be considered the most important ones to include in the draft of any offer.
Contingencies or conditions should be included in any offer to allow for any of these potential problems:
- What if you cannot obtain financing for the purchase?
- What if the property does not appraise for the amount you're offering?
- What if the house fails the various inspections?
- What if there are undisclosed liens on the property from the seller's creditors or family?
- What if the house contains asbestos, or lead based paints, or termites, or radon, or mould, or any of the other dangerous problems that are extremely expensive to eliminate?
Should you have failed to properly include contingencies you could find yourself in a nightmare of legal breaches and at the very least you would have to forfeit your earnest money deposit, which with the prices of houses these days is often enough to purchase a decent new car. Especially in seller's markets when you are facing stiff competition from other buyers, you may consider that placing a larger than average earnest money deposit can impress the seller into understanding the seriousness of your intent and accepting your offer over others. That very well may be, but if the transaction goes sour and you don't have the contingencies in place to get your earnest money returned, you will have taken a serious financial hit.
A great number of unforeseen aspects can pop up through the process of a real estate transaction which call for the entire deal to be cancelled. It is possible that a survey will show that the property lines have been misrepresented, or that there are undisclosed easements which ruin your right to enjoy your home. It may seem absurd, but there have been home owners who have happily settled into their new rural properties only to discover that another party holds the mineral rights and they can't legally stop them from digging up their land!
The amount of time that is allowed within the wording of the contingencies is also critical. Remember that in a real estate transaction some things can take a lot longer than you would ever have expected, and if you have abundant timelines fitted into your contingencies or conditions, you can rest assured that you will not be in a last minute panic situation to satisfy a requirement.
A proper contingency can come into force and nullify the entire contract with the full weight of the law backing it up. You will be entitled to the return of your entire earnest money deposit and the whole transaction will seem to have never have occurred. The time and effort to ensure that the correct contingencies or conditions have been placed into the offer on your part, as well as your real estate agent and lawyer, represent an extraordinarily wise investment that can save your investment.