Boring Title: Navigating Home Buying Contingencies in a Competitive Real Estate Market | ARLnow
Title insurance is boring, but Allied Title & Escrow is here to decode the lingo and make it (a little) more interesting. This bi-weekly article will explore the mundane (but very necessary!) world of title insurance while sharing interesting stories about the entrepreneurial careers of two friends.
What does a contingency period mean? This week, Kim and Hope Peele of The Peele Group at McEnearney Associates explain emergency times and how best to manage them in a competitive real estate market.
Like any industry, real estate has a ton of jargon that is not common to most people. For me, it is extremely important that someone buying or selling a home has all the information and resources they need, before the stakes skyrocket!
When I work with buyers and sellers, some of the most frequently asked questions relate to emergency times. These are durations listed in the
contract in which one of the parties has the option of terminating the contract, without penalty.
Of the many types of contingencies, some are more common than others – so here’s a quick guide to the top three contingencies I’m most often asked about.
Inspection contingency — In some home sale contracts, there is an agreed number of days the buyer can hire a licensed inspector to examine the home.
for faults. Sometimes the contract allows the buyer to cancel during this contingency period, and sometimes there is also the option of negotiating reparations with the seller. If the buyer chooses to negotiate or cancel, he must provide the seller with a report from an approved inspector. In a hot “seller’s market”, buyers can sometimes make this period very short, or even forego it entirely, to appeal to the seller.
Financial contingency — This contingency protects the buyer in case something happens to their loan. Changes in things like employment and credit could potentially
jeopardize the loan. If there is a risk of this happening, it is important to have this contingency in place so that the buyer is not bound by the terms of the contract. Depending on where the buyer’s loan is in the pre-approval process, it can sometimes be waived with confidence.
Valuation contingency — A valuation contingency gives buyers security in case the bank’s valuation does not arrive at the contract price. The bank wants to know if the loan it is approving is worth it. Therefore, if it makes an appraisal that values the property at less than the contract price, the buyer must either make up the difference or make a deal with the seller. Without the possibility of an appraisal, the buyer is responsible for what he has agreed to in the contract – with or without a loan.
An appraisal contingency protects the buyer in case the bank does not allow the loan to go as high as the contract price.
Each buyer and seller should work closely with their real estate agent to decide what is best for them in each particular situation. To learn more about contingencies and to discuss your real estate goals, contact Hope Peele at 703-244-6115 or [email protected].
Do you have questions about title insurance? E-mail [email protected]. Want to use Allied Title & Escrow when buying a home? Tell your agent when buying a house to write Allied title and commitment as your settlement company!