In a hot housing market like Nashville’s, many home buyers try to set themselves apart from the pack by removing closing contingencies from their purchase documents. But it’s always important to consider your contingencies with caution, because removing contingencies from your offer can easily backfire. In fact, there are a few you’ll want to keep — no matter what. In hot real estate markets like the Gulch and 12 South, buyers often have to go the extra mile to make their offer stand out. Some buyers offer sizeable down payments, others write strategic offer letters, some even drop cookies at the door.
As with all things, it’s important to strike a balance. Keep your offer shielded from the unpredictable and you’ll be able to walk away from the deal without losing any money. But in a hot market with multiple offers, consider removing the less important ones. Here are four important contingencies to keep in your offer, and arguably the most important one below.
An Appraisal Contingency
Typically, when you buy a house, you put in an offer, and if the seller accepts it, your lender orders an appraisal. But if the appraisal comes in lower than the price you agreed to pay, you’ll have some decisions to make — mainly how to make up the difference in the home price and the loan amount. An appraisal contingency usually stipulates that the appraisal must come in within 5% or 10% of the sale price, or sometimes even at or above the sale price. If it doesn’t, you’re overpaying for the house.
An Inspection Contingency
A home inspection contingency specifies that you will get a licensed home inspector to check the property within a specified period (typically seven days) after you sign the purchase agreement. Once the inspection is complete, you’re allowed to request that the seller makes repairs, and it’s up to you to decide what repairs you request. The seller then has the option to make the repairs or counter. If an agreement can’t be reached, buyers can back out of their purchase with their earnest money deposit intact.
A Financing Contingency
This clause states that your offer on the property is contingent on being able to secure financing. The main goal of a financing contingency is to ensure that if you can’t obtain a loan, you’ll be able to get your earnest money deposit back. The clause specifies that you have a certain number of days within which to get your mortgage approved by your lender. Many lenders recommend homebuyers allow for up to 14 days.
A Home Sale Contingency
Many buyers need the equity in their current home to purchase a new one. This contingency means that if the sale of a buyer’s current home falls through, so will the sale of the home the buyer wants to purchase. Including a prior-sale contingency in the contract for your new home provides an opportunity to withdraw the offer if your existing home does not sell by a certain date. If you need to sell an existing home before you buy a new one, it’s certainly an option to consider; however, be warned that it’s also one that has been known to scare away sellers.