Including contingencies in your contract can help protect you, your finances, and your family when buying a home.
Here are some important ones to consider:
Option period contingency, which is a specified amount of time – usually 7-10 days – that allows you to back out of the contract for any reason or no reason at all during that time period. During that time you will want to have the home inspected. If necessary you will also use this time to negotiate repairs.
The appraisal contingency, which protects you from owing extra money should your lender’s appraisal come in low. Most lenders allow a variance of 3-5% between the appraised value and offer price. For example, if you offer $200,000 on a home, at a 5% variance, the home could be appraised for no less than $190,000 because $200,000 x .05 = $10,000. If the home is appraised at $185,000, you must either pay the additional $5,000 or walk away from the offer.
The financing contingency, which allows you to back out if your mortgage loan doesn’t come through – even if you were pre-approved at the time of submitting the offer.
The sale contingency, which says your purchase is only valid if you’re able to sell your existing home first. Sellers are typically reluctant to accept an offer with this contingency unless your home is already under contract.
Make sure to talk through possible contingencies with your agent before making an offer. The most appropriate ones vary from buyer to buyer.