By Kay Wilson-Bolton
September 5, 2006
Our real estate conversations and buzz words have really changed. A client asked me today, “How low will they go?” This time last year, buyers were asking, “How high will I have to go?”
One thing that has not changed is the need for contingencies that protect buyers during the hard part of the process—discovery, appraisal and loan approval. There are standard contingencies and should be included by buyers, and expected by sellers. .
Depending on your circumstances, you may also want to add unique contingencies, such as a job transfer, sale of other property, salary increases, bonuses or, Aunt Minnie finally coming through with her annual gift.
If a buyer does not satisfy a contingency, the seller can cancel the contract and the deposit could be at risk. If the seller doesn’t satisfy a contingency—such as finding their replacement home of choice, the buyer can cancel the contract and get the deposit back.
There are four standard contingencies:
- Financing – Buyer or seller can back out if loan is not approved. It is common and expected that buyers have their loan ready before they make an offer on any property.
- Inspections – Buyer can back out if inspections of property condition, pests, lead, radon levels, or the neighborhood itself are unsatisfactory, and if the buyer and seller can’t agree on remedies.
- Title – Buyer can back out if property title is unclear or if easements prove problematic.
- Sale of other Property – This would also include the completion of a 1031 tax deferred exchange if the sale or purchase involves investment property.
There are other Common Contingencies:
- Right of review. Buyer can back out if he or she disapproves leases, rent rolls, bylaws, budget or conditions, covenants and restrictions are unsatisfactory.
- Contingent sale – Buyer or seller can back out if buyer’s current home fails to sell within a certain time limit.
- Insurance – Buyer can back out if unable to obtain homeowner’s insurance. The search for insurance must begin within the 17 day inspection period. Waiting too long can delay closing and cause unneeded stress and 11th hour scrambles.
- Disclosures – Buyers may be able to back out if a seller fails to disclose such issues as earthquake hazard, flood hazard, lead and lead-based paint or other material facts or defects. Buyers can also back out if their findings during the inspection period adversely affect the value or desirability of the property.
- Repairs – Buyer can renegotiate or may be able to back out altogether if agreed-upon repairs are not completed in a satisfactory manner or if seller does not agree to pay for repairs requested by buyers.
- Final construction approval (new homes) -Buyer must approve finish work if construction is not completed before purchase contract is signed. Most closings are also subject to obtaining a certificate of occupancy for the local building department.
- Contract review – Buyer or seller has right to have the contract reviewed and approved by another professional. If the advice of an attorney is sought, he or she should have real estate experience.
On another note, an agent called today (on the holiday) and was irritated because the buyer had not removed their contingency for loan approval within the required 17 days, which was up today. We reminded her that it is a holiday and that the lender could not be reached due to a two-day vacation. We also had to remind her that her seller failed to have utilities on when the home inspector arrived. This caused a delay and an extra expense to call back the home inspector.
The reminder is that this adjusting market requires some extra grace wherever possible. The REALTOR® community is a team and the playing field is our neighborhoods.
Kay Wilson-Bolton is the owner of CENTURY 21 Buena Vista and brings a regional perspective to local issues. She can be reached at 805.340.5025.