Contingency period protects your good faith deposit

The Contingency period dictates the timeline for completing your due diligence on a residential purchase agreement.

Did you sign a Purchase Agreement just because your Agent told you to sign it?

Did your Agent go over the terms of the agreement and explain what your responsibilities were, or just show you where to sign?

Too many home buyers blindly sign Purchase Agreement without understanding what they’re signing.

Next time you are preparing to put in an offer in on a property, make sure to go over the terms of the Residential Purchase Agreement with your Agent, or you could potentially lose your Good Faith Deposit.

Top 3 things to ask your Agent before signing a purchase contract:

1. Is my offer contingent on the Appraisal?
2. Is my offer contingent on the Loan Approval?
3. What is my Contingency Period?

Appraisal Contingency

States whether or not your offer is contingent on the appraisal coming in at value. If your offer is contingent on the property appraising at the offered price, any value at the offered price or above, will meet this requirement.

For example, if your offer price is $250,000 and the appraisal comes in at $250,000 or higher, then your offer is good. Conversely, if the appraisal comes in below $250,000 the Buyer would have two options (1) to pay the short fall amount, or (2) negotiate the sales price down to the appraised value.

Loan Contingency

Your offer can be written with or without a loan contingency. Unless the offer is all cash, it’s advisable to write your offer with a loan contingency.

This basically means your offer is “subject to” your lender approving you for a loan to purchase the home. In the event you are not able to secure the loan within the this period, you have the right to cancel the offer.

Contingency Period

This is considered your “due diligence”. During this time, which is specified in the Purchase Contract, the buyer should perform (1) Home Inspection, (2) Appraisal, and (3) Loan Approval.

This period may be extended with an “Extension Request” sent to the Listing Agent for Seller approval. However, once these items have been completed, the Buyer will remove contingencies.

Removing contingencies (loan and appraisal) basically means the Buyer has obtained the loan and the appraisal value came in at or above the Purchase Price offered.

In addition, during this contingency period, the Buyer had completed home inspection and found no major deficiencies with the property.

In the case where the inspection has recommended repairs by the Inspector, the Buyer can ask the Seller for repairs, during this contingency period. The Seller has no obligation to make repairs, however the negotiation between Buyer and Seller happens during this period.

The Purchase Contract is designed to protect the Buyer, as long as you fulfill your end of the deal. If the Buyer is not able to perform, then there is potential risk of losing the home and possibly your deposit.

Make sure you know what you’re signing and hold your Agent responsible for going over all the terms of the agreement. Only you can protect yourself by being proactive in the entire home buying process. Don’t leave it up to your Agent.

Good luck in finding your dream home!