Clearing Up the Confusion Surrounding Buyer Contingencies

I have received many questions around contingencies as of late.

The two main contingencies in real estate transactions are:

1.) The home inspection

2.) The financing (unless you’re dealing with a 100% cash buyer)

Paying close attention to contingencies is important as you always want to protect your buyer’s deposit(s). Your client will be putting down one or two deposits and if you are not paying close attention to the contingency dates, the seller might be able to keep your client’s deposit.

Therefore, fully understanding the process of these two contingencies is very important.

HOME INSPECTION CONTINGENCY

More than likely your client will be signing the “As Is Residential Contract” and for the Home Inspection, the contingency details are under section 12, and it is relatively self-explanatory. In a nutshell, on the as-is contract, the person is buying the property with the right to inspect. The seller is under no obligation to change the offer, make any repairs, or increase the closing cost credit. If there are any changes to the terms of the original contract this needs to be negotiated and agreed to in writing by both parties prior to the expiration of the inspection contingency.

The home inspection contingency time period is the number of days originally agreed to in the contract and day one is the first day after the contract becomes effective (weekend days and holidays count in the number of days you have).

If you get to the last day and you are still in negotiations or do not have a signed addendum over a reduction in price, closing cost credit or repairs to be completed, you must communicate with the sellers agent and state that if what we are requesting is not agreed to then we are “Canceling the Contract”.  Emailing the seller’s agent is acceptable but the words that need to be in the email are what you are requesting and if your client’s request is not agreed to they are “Canceling the Contract”.

On a side note – it is always better to have a reduction in price or a closing cost credit than the seller do repairs.  There can be confusion around what repairs are to be done and the quality of repairs.  This can present a problem for your buyer and you during the final walk through.  With a cash reduction there can be no confusion.

In summary with the “As Is Contract”, your client unequivocally has the ability to walk away and get their deposit back. However, once you go beyond the contingency date, if you have not agreed with the seller on a reduction in the purchase price, closing cost credit or repairs to be completed, then the inspection contingency is gone and no longer in existence. At this time, if the client no longer wishes to buy the house, they are not entitled to receive their deposit back.

FINANCING CONTINGENCY

For the financing contingency, the details can be found on the contract under section 8, it is a little bit trickier.

In most cases, the buyer must have a commitment and confirmation from the bank either the lesser of the 45 days or 7 days prior to closing.  The buyer must always have the loan secured 7 days prior to closing.

If on the financing contingency date, if there is any uncertainty on whether the buyer will be getting their financing ask for an extension on the financing date and possibly the closing date in writing, or state that you are “Canceling the Contract”.

If you go past the contingency period for financing, your client is now in essence a cash buyer.  If the client does not receive the loan and cannot close, they can lose their deposit.

Protect your clients and always make sure you have the inspection and financing contingency dates noted down on your calendar!

Questions? Reach out to me at [email protected] or 727.888.4175. I am here to help!