Each time I sit down with a client to write their first offer, I realize there is a lot of real estate jargon that causes them to look a little lost. That look in their eyes let’s me know it’s time to translate the real estate mumbo jumbo for them. But as new tools like electronic signing technology become more popular, buyers are less likely to be in the same room as their agent when discussing the terms of their offer.
This is not only the case for first time buyers. Contracts differ state by state. Homeowners from New York or California have different contracts, laws and practices that we do in the DC Metropolitan Area. I am licensed in Washington DC, Virginia and Maryland and there are differences in the contracts and laws within these states.
There are some terms that consistently produce that look of confusion. One is contingency. I’ve defined and described the was they tend to work in the DC Metropolitan Area.
What is a contingency?
What types of protections are available to me when buying a home?
When you work with your agent to prepare a written offer on a home, you may be writing a 30+page contract. Many of the terms of the offer include protections for the buyer. These protections are also called contingencies. There are all types of contingencies you can add to a contract, ranging from appraisal contingencies to a specific contingency that will void the contract if you can’t sell your home in order to buy the next one. It is important to read the contract carefully to understand the terms of the contingencies and discuss the range of possible options with your real estate agent.
What is a contingency?
A contingency is a condition that must be met before a contract is legally binding and able to move forward to settlement. Contingencies can expire or be released by the buyer.
Here are a few contingencies to consider when writing your offer on a home:
Financing – This is a very common contingency and is used by most people who are using a mortgage product to purchase their home. It says that the sale will not go through if the buyer is not approved for financing. Unless you have enough cash to buy the home without a mortgage, you will be using a financing contingency.
Appraisal – Sometimes the appraisal contingency is connected to the financing contingency, as with VA loans. Other times it is separate. In either case, the appraisal contingency says that the sale is contingent on the home being appraised at or above the sales price. Many people think of this as a protection for the buyer who would not want to pay more than a house if worth. The appraisal also protects the bank from loaning out too much money for the home that is used as collateral. In some states, the buyer may void the contract even if the property appraises at or above the sales price, not just below. It can also result in a negotiation of price.
Home Inspection – This is one of the contingencies I recommend every buyer include with their offer. It allows a certain number of days for the buyer to have the home inspected by a licensed home inspector and either request repairs be made, ask for money back in lieu of repairs, or void the contract if the repairs exceed what the buyer or seller can handle.
General Inspection – In some areas, there is something called the general inspection, which is used with properties being sold in “as-is” condition. It allows a certain number of days for the buyer to have the home inspected by a licensed home inspector and then allows the buyer to stay with the deal or void if the repairs are too much for the buyer to handle. It does not typically allow for repairs to be made because it is an “as-is” Property.
Radon – The radon contingency allows the buyer to hire a professional to install radon testing canisters in the home for 48 hours. The canisters are then retrieved and taken to a lab. If the radon levels are above the federally established level of 4.0 picocuries per liter, the buyer can request that the seller remediate the problem. Read EPA’s home Guide to Radon for more information.
Lead Paint – If your home was built before 1978, there is a possibility that it has some lead paint in the home and you should have received a copy of the required Federal Lead-based Paint Disclosure form to sign. Testing for lead paint requires that samples be taken from the home by a licensed professional. You may choose to void based on the findings, but EPA provides a guide called Protecting Your Family from Lead in Your Home to assist buyers of older homes.
These are just some of the possible contingencies that you could add to your contract. Be sure to discuss these contingencies with your real estate agent to make sure you understand how the contingencies work in your local area.
If you are looking for a home in the DC Metropolitan Area and you want to be sure you’re working with an agent who is protecting you, give me a call to Get Started.