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Contract Contingencies

A contingency allows for certain specific conditions to be met or you have the option of backing out of the contract. There are typically two major contingencies that accompany a contract to purchase: financing or mortgage and inspection.

Other Contingencies That Might Appear In A Contract For Purchase:

·    Sale or closing of your current residence.

·    Admittance to certain clubs (for example, if you are buying a home near a private golf course, you might make the purchase contingent on your acceptance to the club).

·    Approval by the condo or homeowner’s association.

·    Pest inspection, asbestos, radon, lead, water (may be separate contingencies or included in the inspection contingency).

·    Compliance with building codes or zoning ordinances.

·    Liking it in person, if you are bidding on a home sight unseen (perhaps through the Internet).

You can have almost any contingency you like, but remember, having contingencies, including mortgage and inspection, could give the seller grounds for refusing your contract.

Mortgage Or Financing Contingency

A mortgage or financing contingency gives you a way to back out of the contract to purchase if you cannot get a lender to give you a mortgage commitment (approval).

The contingency will generally require you to be specific about the type of mortgage you are seeking and will require you to seek mortgage approval within a specified period of time, generally forty-five to sixty days. You must be reasonable about the mortgage's parameters, and usually you must agree to look for a mortgage at the current prevailing rate of interest. The contingency is meant to protect you in case you can't obtain financing.

Inspection Contingency

The inspection contingency gives you the right to have a house inspector or other qualified person to come and examine the property before you close on the purchase.

Again, the purpose of the inspection contingency is to protect you from buying a home that may have serious hidden structural problems or material defects. When you include an inspection contingency to the contract, you'll want to make sure it covers both the home and the property. Many lenders now require at least a termite inspection as a condition for making a loan. You may also want to have the house inspected for property defects, lead, radon or other environmental hazards.

Generally, the inspection contingency will require you to have your inspection within five to ten days after the seller accepts the offer. Otherwise, you may lose the right to withdraw from the contract. Keep this in mind when scheduling your various tests.

When Don’t I Need An Inspection?

I’m often asked if every homebuyer should have his or her future home inspected. That depends. If, for example, you’ve been living in your home for the past 5 years as a renter, and you’ve been responsible for the entire upkeep of the property, then perhaps you know what problems exist with the plumbing, heating, and electrical systems. Perhaps you know that the back right burner on the stove doesn’t work and the air conditioning compressor is on its last legs.

But most homebuyers haven’t lived in the property they’re going to purchase. They don’t even know where the water shut-off valves are. And if that’s the case with you, you should definitely pay for a professional home inspection.

Condo Or Co-op

Some say that if you’re moving into a condo or co-op apartment building, you have relatively little risk of something big popping up. That’s because with a condo you only own what’s inside your unit plus a share of the common elements of the property. With a co-op, you don’t even own that. You own shares in the corporation that owns your property and you pay a monthly rental fee (the maintenance or assessment) for the unit that the shares represent.

The only things for which you’re responsible are interior electrical work, appliances, and plumbing fixtures (and sometimes not even those). Your financial liability, should something go wrong, is slight.

Condo Or Co-op Professional Inspection

A good inspector will tour the common elements of the property, look at the building heating, electrical and plumbing systems. Check out the roof, the foundation, the parking structure, and the windows.

By having the inspection, you learn not only how your own property works, but also what problems may exist in a condo or coop – problems which you’ll have to pay for during the time you live there.

 Also see Home Inspection for more information.

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