In this column of the Atlanta Real Estate Buyers Guide, let’s talk about Contract Contingencies and how they can affect your offer as well as the various outcomes.
As we covered in our previous post, you’ve made an offer on the home or condo that you have decided best meets your Wants and Needs! Most likely that offer is going to have contingencies attached to it. Let’s look at what some of those might be. Contingencies are kind of like a chance that something could, or could not happen.
Due Diligence Period — There are numerous contingencies you have in a Georgia Real Estate contract, but the Due Diligence Period may be the most important one! During the due diligence period, you have the right to terminate the contract for any reason, whatsoever. While we will cover other contingencies that can be a part of your contract, this all encompassing contingency can help you end a contract if you need to. Of course, the time length of your due diligence period is one of the negotiations you will have gone through as you came to terms on your contract. This is the time period when you will conduct your inspection, review homeowner’s association documents and budgets, perhaps review schools in detail, etc. As you can see, this time period can cover a variety of things.
Keep in mind, the Seller will want this time period to be as short as possible to assure you are sticking with your contract. But their can be various reasons as to why the time period can be long, or short.
Appraisal Contingency — You should NEVER enter into a real estate contract without this contingency in place. (Heard the phrase “never say never?” Hang on…..)This is a VERY important contingency!!! If any appraisal performed by your lender in obtaining financing for your purchase is for less than the purchase price of the Property, you as the Buyer have the right to request that Seller reduce the sales price of the Property. In this instance, perhaps the Seller cannot lower the price due to what they owe on the property. With this contingency in place, you can terminate your contract and receive your earnest money back.
If it’s not a huge difference, and it really is the home or condo of your dreams, I have seen Buyers pay the difference. That is something I would discuss with you based on the market, the home you have found and how long you think you will be living there. Never Say Never….well in a real estate market with limited inventory, it is not uncommon to have a bidding war if there are several buyers for one home. As you start to offer over the list price for the home, the appraisal could become an issue. The Seller may not accept your offer unless you remove the appraisal contingency! But you said Never! Here the situation would be that you have the financial resources to make up the difference should the home or condo not appraise for the contract price.
Financing Contingency — You should have crossed most of your financing hurdles with your pre-approval with your lender. With a pre-approval, your lender just needs a contract and then the appraisal for you to move forward. But they may still need approval of the condominium project (if the lender has not done a recent mortgage in the community, they submit a questionnaire to obtain information about the financial health of the building as well as the number of rentals and the number of delinquent HOA fees). This contingency needs to be long enough for your lender to complete your loan. I’ve seen many times, where this contingency has to be extended, and this can be a challenge with a Seller who has had their home off the market. So, I work with your lender (our Team Lenders know this process well!) to make sure we have adequate time in this contingency. If you are a cash buyer, then most likely you don’t need this contingency.
Short Sale Contingency– This contingency will come into play if you are purchasing a home from a Seller that is doing a short sale. This means that the owner of the home owes more than it is worth, and is asking the lender to take a reduced payoff on the mortgage. This contingency protects more the Seller than the Buyer in that it outlines the steps for the Seller to achieve a successful short sale and release of liens from the lenders.
You may also have a contingency for selling your home first (another challenge in a limited inventory market), or for taking back up offers. These are the main parts you will want to be familiar with.
In our next column, we’ll talk about the……Inspection!