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Common Real Estate Contract Contingencies You Should Consider Including In Your Purchase Offer
Throughout the home buying process there are many decisions that have to be made. Determining how much to offer for a home, whether or not you’d like to ask for seller concessions, and when you’d like to ideally close on your new home are just a handful of the most common decisions that you’ll have to make.
Another decision you will need to make during the home buying process is deciding what home buying contingencies you will include in your purchase offer. There are many common real estate contract contingencies to choose from and need to protect your interests.
Once you find a home that you feel is the perfect fit, it’s extremely important you know which home buying contingencies you can include in your purchase offer.
Below are some home buying contingencies that you should consider including in the purchase offer when buying a home. Read on to find out why these home buying contingencies are important to consider including in your offer.
Attorney Approval Contingency
One of the first things that will happen once a buyer and seller agree to terms of a purchase offer, in most cases, is both the buyers and sellers attorney will review the contract. One home buying contract contingency that you will have to decide whether to include or not is whether you’re offer will be contingent on an attorney’s approval.
Since buying a home is such a huge investment and can be quite complex, purchasing a home without having an attorney’s representation is never suggested. When buying a home, your attorney is responsible for protecting your best interests and to make sure you’re not making bad decisions or a poor investment.
It’s highly recommended when buying a home you select an attorney who practices real estate. Hiring an attorney who does not practice real estate can create a ton of issues. Real estate attorneys are well versed in protecting their clients interest and know how to solve issues that may arise during a real estate transaction.
There are lots of reasons to have a home inspection when buying a home. Many home buyers believe that a home inspection is the only contingency that they can have included in their purchase offer. There are actually many inspection contingencies that can be included in a purchase offer.
Below are some of the most popular inspection contingencies that buyers can select from when submitting a purchase offer.
The most common inspection contingency in real estate is the home inspection contingency. A buyer has the option to make their purchase offer contingent on an inspection of the home.
Generally, a home inspection will cost a buyer between $350.00 – $500.00, depending on the square footage of the home. There are very few circumstances in which a buyer would want to consider not making their purchase offer contingent on a home inspection.
The primary reason why a buyer should make their offer contingent on a home inspection is to ensure the home does not have any major deficiencies. It’s almost a guarantee that a home inspector will find issues with every home. Some of the issues resulting from a home inspection are minor and others can be major, such as structural issues.
Radon can easily be described as a cancer-causing gas that can be present in a home. Another inspection contingency that buyers have the option to include in their purchase offer is a radon test contingency.
A radon test will normally cost a buyer between $100.00 – $200.00. In order for radon to be considered a threat in a home, there needs to be a level of 4.0 pCi/L or greater. If there are levels of 4.0 pCi/L or greater, a radon mitigation system should be installed to reduce the threat of the cancer causing gas. A radon mitigation system, if professionally installed, should cost between $1,000.00 – $2,000.00.
Another inspection a buyer has the option to make their offer contingent on is a pest inspection. Depending on your location, pests and insects can create major problems in a home. The most common culprits are termites, carpenter ants, and boring bees.
A pest inspection will generally cost between $75.00 – $200.00, again, depending on the square footage of a home.
If you’re buying a home that is not connected to public sewers and has a septic system, another contingency you will have the option to add to your purchase offer is a septic inspection. It’s suggested that if the home has a septic system, you not only have the septic system inspected but also pumped, prior to the closing, unless it has been done in the past six months or so.
Depending on the size and type of the septic system, an inspection and pumping will generally range between $200.00 – $300.00. Issues with a septic can be very costly to fix, or even worse, replace with a new septic system.
Well Water Test
If a home is not connected to public water and water is provided from a well, another inspection contingency that can be added to a purchase offer is a well water test. A homes well water is tested to ensure the levels of coliform, nitrate, bacteria, e. coli, radon, and lead are within safe and recommended levels.
A well water test will typically cost between $150.00 – $250.00 depending on how detailed the test is. An example of a common issue resulting from well water tests are high radon levels. Removing radon from well water can be done but can be fairly expensive, which is another great reason to consider making a purchase offer contingent on a well water test.
Another common inspection contingency for homes with fireplaces is a chimney inspection. It’s recommended that not only a buyer has a homes chimney inspected but also cleaned, sometimes referred to as a chimney sweep.
The cost of a chimney sweep and inspection generally ranges between $75.00 – $150.00. A good chimney inspector will ensure that the chimney is in good, safe, and in working order. The cost to repair a chimney can be quite costly depending on the extent of the work that is required.
Some of the most common repairs that are required with chimneys include, but are not limited to, cracked liners and deteriorated or cracked chimney crowns.
Foundation & Structural Inspection
Structural and foundation issues with a home can be extremely costly to correct. The reality is that structural and foundation issues are something that can scare away potential buyers from a home. A buyer has the opportunity to make their offer subject to a foundation and structural inspection.
The cost of a foundation and structural inspection will normally vary between $100.00 – $250.00. These inspections are normally conducted by professional engineers, sometimes referred to as a “PE.” Some home inspectors are professional engineers and can perform an inspection of the homes foundation and structure while completing the home inspection.
Buying (or selling) a home with mold is extremely tricky and can be down right scary. Buyers have the option to make a purchase offer contingent on a mold test. This is another common inspection contingency in purchase offers.
Mold inspections normally cost between $75.00 – $150.00, depending again on the square footage of a home. A quality mold inspector will make sure they inspect the “hard to reach” areas of a home, including crawl spaces. If there is mold present in a home, there are methods of remediation that can be used. It’s suggested that if mold is found during a mold inspection that it is professionally re-mediated.
A quality home inspector should be able to identify potential mold issues and will recommend the mold is further evaluated by a certified mold specialist.
If a buyer is purchasing a home with the assistance of a mortgage, a mortgage contingency is a must. A mortgage contingency is one of the most important home buying contingencies to include in a purchase offer for several reasons.
First and foremost, having a mortgage contingency in a purchase offer protects a buyer, should there be an issue with getting mortgage approval. A mortgage contingency should state that if a buyer cannot obtain financing that they will be given their earnest money deposit back. It is possible a buyer can be denied a mortgage even after a pre-approval has been issued and this contingency protects the buyer, should something unexpected happen.
Another important reason to include a mortgage contingency in a purchase offer is because it spells out what type of mortgage a buyer is obtaining, what the loan-to-value percentage will be, and also creates deadlines in which the mortgage approval will be issued.
Earnest Money Deposit Contingency
An earnest money deposit, sometimes referred to as a good faith deposit, is a deposit that is made by a potential buyer that shows a homeowner they are serious about purchasing their home. A buyer has the opportunity to elect how much of a earnest money deposit they would like to give a seller. It’s suggested that you ask the advice of a top real estate agent who will be able to give some insight into how much of a deposit you should give to a seller.
The earnest money deposit contingency states that a buyer will submit the deposit within a specific amount of days or has already submitted the deposit. It’s important to understand when buying a home the amount of the earnest money deposit a buyer offers can make a difference as to whether or not a buyers offer is accepted or not.
A great way for a buyer to help win in a multiple offer situation is to submit their earnest money deposit when their offer is submitted to a seller and also make sure the deposit is a substantial amount of money. If able, a buyer who can provide a very strong earnest money deposit, which is at least 5% of the purchase price will give themselves an advantage over other potential buyers.
Permits / Certificates of Compliance Contingencies
Another home buying contingency that buyers have to decide to include in their purchase offer or not relates to permits and certificates of compliance. A buyer has the option to ask for permits for improvements made to a property, which can include;
It’s possible that a buyer will not ask for a permit for a fence that was built 50 years ago, however, it’s suggested that for large additions or improvements that a buyer asks a seller to provide the permits. It’s extremely important when making additions and major improvements to a home to get permits for this reason.
By not asking a seller for a permit a buyer opens themselves up to potential liability in the future. For example, if the local municipality finds out about an improvement, such as a deck that isn’t permitted, it’s possible they will inspect the deck and find it’s not to local code. This can lead to a buyer having to remove the deck from their new home.
Home Sale & Transfer Of Title Contingency
Buying and selling a home at the same time can be very tricky. Another home buying contingency to include in your purchase offer is a home sale and/or transfer of title contingency, if you have a home to sell.
The home sale contingency informs a seller that the buyer needs to, and hasn’t, sold their existing home. The home sale contingency allows a buyer to indicate if they’ve received and accepted an offer on their home and requires they inform a seller if the offer they’ve received is still contingent on the buyers inspections, mortgage approval, or attorney approvals.
The transfer of title contingency states that the home a buyer is purchasing is subject to their current residence transferring to the new buyers of the home. This contingency commonly sticks throughout the entire transaction, since the closing date normally occurs on the same date for both the sale of a buyers existing home and also what they are purchasing. This contingency can be removed if a buyer is able to purchase a home without having to sell their existing home which eliminates the need for a transfer of title contingency.
Homeowner Association Rules & Regulations Review Contingency
This home buying contingency only will apply for buyers who are buying a piece of property that is part of a homeowners association, which is also referred to as an HOA. Buying a home that is part of an HOA, such as buying a condo, should always be contingent on the review and approval of the HOA rules and regulations.
Since being a part of a homeowner association has benefits as well as drawbacks, it’s important that a buyer knows exactly what they are signing up for. Every HOA is different and will have their own set of rules and regulations.
For example, recently while selling a waterfront condo in Irondequoit, NY, the homeowner association only allowed small pets, under 10 pounds. This eliminated potential buyers who had pets larger than 10 pounds and was something that was clearly stated in the HOA rules and regulations. This is why it’s important a buyer makes their offer contingent on the review of the HOA rules and regulations.
It’s important when buying a home, you’re protected by many of the above home buying contingencies. Without these contingencies in your purchase offer, you open yourself up to additional risk that could be avoided. The above home buying contingencies are some of the most suggested to include in a purchase offer, however, not all are required.
Other Home Buying Resources
Are you thinking of buying a home in Rochester, NY? If so, it’s critical to protect yourself during your Rochester, NY home buying experience. If you don’t have a buyers agent to represent you in your purchase, contact me and I’d love to share my expertise and knowledge with you about the local real estate market.
About the authors: The above article “Home Buying Contingencies To Consider Including In Your Purchase Offer” was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise.
We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.
Visit our website at www.HiscockHomes.com.
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