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Contingencies in a Purchase Offer
In most purchase
transactions there may be a slight challenge or two, but most things will
go quite smoothly. However, you want to anticipate potential problems so
that if something does go wrong, you can cancel the contract without
penalty. These are called "contingencies" and you must be sure
to include them when you offer to buy a home.
For example, some
"move-up" buyers often agree to purchase a home before selling
their previous home. Even if the home is already sold, it is probably a
"pending sale" and has not closed. Therefore, you should make
closing your own sale a condition of your offer. If you do not include
this as a contingency, you may find yourself making two mortgage payments
instead of one.
There are other
common contingencies you should include in your offer. Since you probably
need a mortgage to buy the home, a condition of your offer should be that
you successfully obtain suitable financing. Another condition should be
that the property appraises for at least what you agreed to pay for it.
During the escrow period you are likely to require certain inspections,
and another contingency should be that it pass
those inspections.
Basically,
contingencies protect you in case you cannot perform or choose not to
perform on a promise to buy a home. If you cancel a contract without
having built-in conditions and contingencies, you could find yourself
forfeiting your earnest money deposit.
Or worse.
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