Contingencies are clauses written in real estate purchase agreements and contracts that give buyers a way to “back out” if they decide they no longer want to move forward with the purchase. Contingencies are very common in California real estate contracts. There are three types of contingencies that are the most common for California buyers. Contingency periods can last from 5 to 30 days, and once contingencies are removed, a buyer is obligated to buy the property.
An Inspection Contingency is a contingency based on the results of a home inspection. A home inspector checks the home for termites, other pests, mold, lead paint, and asbestos, as well as for electrical, plumbing, and foundation issues. After the home inspector’s report comes back, buyers have the option to negotiate for repairs, or walk away from the contract if they believe the inspection illuminates too many serious issues.
Appraisals are used to estimate a property’s value. Appraisers use the property’s location, condition, and the current market to determine its appraised value. The Appraisal Contingency allows the buyer to walk away from the purchase contract if the property’s appraisal comes in lower than the contract price and the seller is unwilling to come down from the contract price. If buyers decide to waive the appraisal contingency, they are agreeing to pay the full sales price—even if the appraisal comes in lower than the property’s contract price.
Loan or Financing Contingency
A loan contingency is put in place to protect buyers if they are unable to obtain mortgage financing for any reason. Most buyers in California are pre-approved before shopping for homes, but this contingency is still often necessary to protect California buyers if their qualification is particularly tight or complex. If buyers make offers with no loan contingencies and they are unable to qualify for financing, they risk losing their earnest money deposit.
Most real estate purchases successfully close without buyers backing out of a deal due to a contingency. These contingencies are in place to protect buyers from being forced to follow through with a purchase that may turn out to no longer make economic sense. The contingencies also protect buyers’ earnest money deposits. In competitive markets, some buyers choose to waive contingencies to make their offers more attractive to the sellers. It is, however, always best to consult an experienced real estate agent and lender before waiving any contingencies in a purchase contract.
Questions? Contact JVM Lending To Learn More
This blog covers just some of the basics of contingencies for buyers in California. To learn more about mortgage contingencies for California home purchases or to discuss your homebuying and mortgage financing options, contact our team by phone at (855) 855-4491 or by email at firstname.lastname@example.org. Our Client Advisors are available seven days a week and are experts at helping first-time homebuyers navigate the homebuying process.