So You are Thinking About Buying a Home…
The rates just dropped! So go for it! Very first thing you need to do is to get pre-approved, by a reputable lender, for a mortgage. You need to know what you can qualify for and when you put in an offer to purchase, sellers will take your offer seriously! (Also, it will be less likely you will fall in love with a house you can’t afford!) As you work with your REALTOR, you will be well prepared to write an offer on the home of your dreams!
Once the offer to purchase is accepted by the sellers the real work begins. It’s a GOOD thing you chose a REALTOR to help you negotiate through this process. It can be a nerve-racking ordeal as you negotiate your way with the sellers. It can be overly stressful when there is more than one offer on the table! You need to know a little bit about making an offer, the purchase contract/agreement, and the contingencies that are involved.
First of all when you make an offer to purchase a home you will need to provide an earnest money deposit, EMD check. This is a “good faith” payment to show the seller that you are a serious buyer and you have every intention to buy this home depending on how all the contingencies turn out. This deposit is held in an escrow account, and then credited toward the purchase price at the time of closing/settlement. If you change your mind and decide you are not going to go through with the purchase, you may risk losing the deposit UNLESS you have some contingencies written into your contract. This is so important to understand.
So what is a contingency and what types of contingencies are there? A contingency is a condition written in your offer to purchase/contract that specifically states that the contract is reliant upon certain events taking place such as the financing contingency (lender approval for your mortgage), home inspection contingency – which includes pest inspections, radon, and an appraisal contingency.
- A financing contingency allows a specified amount of time for the buyer to obtain a loan commitment and acceptable financing terms from a lending institution. This includes items such as a specified interest rate, or loan term. If the loan is not approved exactly as stated, the buyer then has the option to cancel the offer/contract without being in default.
- A home inspection contingency is part of the contract. Typically there is a certain amount of days given after the date a contract is ratified to have the home inspected by a professional, insured inspector. The inspection includes the property inspection that covers possible structural problems or material defects. This inspection also includes the presence of radon This contingency can spell out who will pay for repairs and to what extent the parties are willing to pay. Should the buyers not be satisfied with the inspection they have the option to void the contract without penalty.
- The sale of the home is contingent upon the appraisal. The purchase is not obligated to complete the purchase for the home or to be penalized if the home does not appraise. The appraised value is arrived at to determine the maximum mortgage that the lender will give. If the appraisal is equal to or greater than the sales price the contingency is satisfied and removed and it proceeds to settlement. If the appraisal is not equal to or greater than the sales price the purchase can elect not to proceed with the purchase, unless the seller elects to lover the sales price to the appraised value. If the seller does not lower the sales price, the parties may agree to mutually acceptable terms.
These are the basic contingencyies. There are others such as whether the sale is subject to the approval of a condominium or property owner’s association. You may have special concerns that are not covered in the standard contract. There are termite/ wood destroying psest inspections as well. You will need to make your contingency as specific as necessary to cover and convey your concerns.
To increase your chances of having your offer to purchase accepted you can offer to pay all cash (which avoids the financing and appraisal contingencies) and decline contingencies. Once a contingency has been met and approved both the buyer and the seller should sign a document that removes the contingency from the contract. But here is an important thought: if the contingency is not fulfilled exactly as it was written, you have the option to withhold your approval and void the contract. AND, if the deadline for the contingency passes and the parties do not sign off on item this failure to act serves as acceptance of the contingency. Good record keeping is always critical and necessary!
Marcia Goodman, REALTOR
7521 Virginia Oaks Drive, #100, Gainesville, VA 20115