Many home buyers, in the excitement of finding the home they’ve always wanted and writing an offer, forget to add contingencies that will protect them. A contingency is a clause added to an offer to make it subject to a certain event.
Common contingencies or subject-tos include: Financing approval. Home inspection. Closing by a certain date. Replacing a roof, floor coverings, painting the home’s inside or outside. Third-party approval, such as a bank in a short sale, parental approval, repair bids from contractors. Selling a current home by a certain date. Although inserting contingencies in your offer may weaken it or make it less competitive, some are routinely needed to protect you from events that are out of your control.
For example, one buyer’s agent insisted on putting in a ‘‘subject to final loan approval’’ contingency in her client’s offer, even though he had a mortgage preapproval letter. Unfortunately, two days before closing, the buyer lost his job owing to downsizing, and that eliminated any chance of closing on the loan.
This saved the buyer from losing his $3,000 deposit. Some especially important contingencies that protect you are:
1. Making your offer subject to a professional inspection. If you find problems, you have some leverage to get them fixed, or you can walk away and get your deposit back. You may want to add specific contingencies for mold, radon, rot behind stucco or siding, and other problems specific to your area.
2. Making your offer subject to final loan approval. Life is uncertain and sometimes things happen over which you have no control but that can prevent you from closing.
3. Adding a clause making the deal subject to your old home’s closing. If you’ve made an offer on a new home, and your old home is sold but hasn’t closed yet, this protects you should the buyers on your home run into problems that can domino and jeopardize your purchase.
4. Making the offer subject to the home appraisal for at least the sale price. If it comes in low, you’ll have the option of negotiating a lower price or walking away and getting your deposit back.
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