You’ve looked for homes, you found the perfect one, made an offer and were accepted!Now your agent is talking to you about contingencies and you nod your head because you’re sure you should know what they mean, but really have a lot of questions.
Purchase contracts typically have contingencies whereby if you learn new information during the course of escrow, during a specified time period, you may cancel the contract and generally get back your earnest money deposit.
For example, in California, we typically have contract contingencies for loan, disclosures, inspections, appraisal and HOA.Less used, but also applicable are contingencies for the sale of the buyer’s current home or leased items in the new house such as solar panels.
The purpose of the contingency period is to allow the buyer to do further investigations on the home to make certain the home will meet their needs and is indeed the value of the offer made.Most often in our area of Orange County, contingencies are due around 17-21 days of escrow.
Appraisal – Buyers may cancel if the appraisal comes in at less than the contracted price, however, there can be other remedies to cancelling if you don’t want to.
Loan – Your lender will work with you to get your preliminary loan approval.This means, based on all the information they have at hand, they believe they can give you the loan needed to buy the home.If for some reason, the loan does not get approved, you many cancel within your contingency period.
Disclosures – Sellers are required to give you information about the home for you to review.This can vary depending on the type of seller…owner occupied, foreclosure, probate.Items you can most likely expect: a report showing flood zones, earthquake areas, fire hazard lines; a title report showing any clouds to title; information about repairs or defects in the home, whether someone died in the last three years at the property, any known nuisances, etc.
Inspections – As a buyer, you should hire an inspector to conduct any needed physical inspections on the home.You want assurances that the home is in good working order from what the inspector can tell.Remember, no one can see behind walls, under floors or in inaccessible places, so it’s never 100%, but will give you an idea of a lot of problems that may exist.
Leased Items – If the property comes with leased solar panels or a water softener that is leased, the seller is required to tell you.The buyer may need to assume those leases and qualify for them with the new company.Additionally, those lease payments may impact your loan and should also be discussed with your lender.
HOA – Any property that has an HOA is required to give you copies of certain documents that tell you the rules of the community as well as the financial soundness of the HOA.It can be a GIANT stack of papers and is sometimes difficult for buyers to wade through.You are responsible for knowing the information and acting within the confines of those rules once you take ownership though.A few of my preferred documents to highlight: the budget, the main rules section and the minutes from the last twelve months.I like the minutes because they tell you what kind of issues come up at meetings as well as anything that is up for discussion and may change in the near future.
Overall, these contingencies are to protect you, the buyer, from making a purchase decision that may be unsound, either in general or for your particular circumstances.Make sure you work with an experienced agent, like our team at Meredith Drews Realty Group, who watches over your best interests throughout the entire process and beyond.
For further questions or to schedule a consultation, contact Meredith Drews at 949-378-5690 or firstname.lastname@example.org.