The Home Buying Contingencies You Should Know

Contingencies are a way for people buying a home soon to learn more about the house and its seller between the time they make an offer to the time the property is officially transferred. These conditions range from financial considerations to home inspections to inclusions of popular home improvements. The demands buyers can make depend heavily on the market, the popularity of a neighbourhood, and the seller's expectations, but there are a few standards that everyone should know. Keep reading to learn about the most common homebuying contingencies.

Understanding How Contingencies Work

An official Offer to Purchase is a promise made by the buyer to pay a certain amount for a given property. It can be made with no stipulations, or it can be made with conditions. Technically, there are no real rules when it comes to contingencies. Buyers may make unusual requests or demands, and it's up to the seller to reject or accept them.

Ideally, most sellers hope for the unlikely scenario where a buyer pays in cash to purchase the home exactly as it stands. It helps to keep this fact in mind when structuring your offer. Buyers should strive to be fair to themselves and to a seller who may want to be out of their homes as soon as possible.

Mortgage Approval & Inspection Contingencies

Most buyers ask for the home sale to be contingent on final financial approval on the off-chance their loan doesn't go through after the underwriting process. Buyers who make an offer without this contingency may face extreme penalties if pre-approval falls through. If buyers are selling their old home, they can request for this sale to be finalized before closing on the new home as well (though this is less common.)

Another standard request is to have a home inspector tour the property. No matter how thorough a potential home buyer is, they can't always tell the structural problems that lurk beyond the walls and floors. From mould to unstable foundations to dated wiring, a home inspection can help save home buyers from having to make major repairs right after they move in.

Cost-of-Repair & Appraisal Contingency Clauses

A cost-of-repair and appraisal contingency clause helps provide insurance to fully protect the buyer if expensive damage is revealed during the inspection. The cost-of-repair contingency clause essentially specifies how much it would cost to perform necessary repairs. If, after a bad inspection, the inspector reports lists of repairs that exceed the dollar amount, the buyer can back out of the contract to purchase the home. Cost-of-repair contingencies are estimated at one to two percent of the house's sale price. 

The appraisal contingency clause helps protect the buyer by ensuring the property's fair market value is set to a specified dollar amount to prevent the buyer from overpaying. If the home's fair market value is appraised lower than the minimum specified amount, the buyer can back out of the home purchase contract. 

Title Verification & Scheduling Contingencies

A title serves as the official record of who owns the property, and it's often the only tool a buyer has when establishing official rights. Ex-spouses, neighbours, and lenders may all claim that some or all of the property is theirs, and these disputes often don't become clear until the title has been verified by an impartial third party.

Buyers are also allowed to ask for extra time to ensure that all of their contingencies can be fulfilled. So if the only home inspector in a buyer's area goes on vacation for two weeks or they're backed up with other work, buyers don't have to worry about the sale falling through due to scheduling issues.

Property Request Contingencies

Finally, buyers can make requests for sellers based on the state of the property and their wishes. One popular example is if a seller has a home theatre room, the buyer may request for the home sale to include all equipment and amenities.

Buyers can also make explicit exclusions before agreeing to sell a home. So if there's an outdated lighting fixture in the hallway, a buyer may ask for the fixture to be removed before closing escrow. Inclusion and exclusions are a matter of each party's negotiating skills, but these contingencies at least have the potential to be resolved quickly.

Leverage Your Buying Power With Contingencies

Now that you understand the different types of home buying contingencies, it’s important to know how to use them to your advantage when evaluating homes for sale. These clauses are a way for you to learn more about the property and its seller, so be sure to take full advantage of them. By using contingencies in your offer, you may be able to get the best deal on your new home. Are there any other contingencies we didn’t mention that you would find useful?