Buying a Home? Contingencies - What Are They?

November 7, 2017

If you are buying a home in today's real estate market, you will be preparing and signing a purchase agreement that will be presented to the seller or seller's Realtor which will detail out your price and terms!  



There will be a lot of different things in the offer - price, closing date, legal description, your names, the sellers names, who you will want to use to do your closing - and so on!  And, inside the offer there will be a number of contingencies!


So, just what is a "contingency"?  In real estate, a contingency is something that is put into the contract that has to be met in order for the contract to go through to closing.  In most real estate contracts you will have some very common contingencies that are common to all contracts, no matter what state you are in!  In others, there may be contingencies in a contract that would only pertain to the state of Virginia!  And then there are others that may only pertain to the Richmond Virginia area!


Most Common Contingencies in Most Contracts


In most contracts you will have some common contingencies:


*  Mortgage:  This means that the offer is contingent upon getting full loan commitment from the lender.  It is usually defined by the Loan To Value percentage (ex: getting a loan not to exceed 95% loan to value) as well as the term (ex:  getting a 30 year loan or a 15 year loan) as well as the type of loan (ex: getting an FHA or VA or VHDA loan, getting a loan with an adjustable rate mortgage or a fixed rate mortgage).  This is not the same thing as being "approved".  Loan commitment means that the loan officer prepared a package which includes verification of the buyer's income, tax returns, bank statements, full credit report, appraisal and any other documentation that may be needed, and was sent to the underwriter, who reviewed the file and either approved it or declined it!  


*  Appraisal:  Even if a buyer will be paying cash for a home, they may want to make sure that it appraises for the purchase price.  If the buyer is getting a mortgage, then an appraisal will definitely be required by the lender.  With an appraisal contingency, the house must appraise for at least purchase price in it's current condition.  


*  Inspections:  Most buyers today will want to do an inspection of the home.  Normally, there will be a certain time period the buyer has to do any and all inspections of the house.  Even if the home is being sold as is, it is wise to have an inspection and be able to walk away from the contract if you are unsatisfied with the results of the inspection.  In addition to the whole house inspection, buyers may also want to do the following inspections:

          *  Radon

          *  Termite (normally done by the sellers, but sometimes the buyer should do)

          *  Mold 

          *  Well and Septic (normally done by sellers, but sometimes buyer should do)

          *  Chimney & Fireplace

          *  HVAC

          *  Roof


*  Home Sale:  If you have a home to sell then you may have a contingency in your offer that is contingent upon your current home closing.  It could be either a contingency on the successful closing of your current home (assuming that your current home is under contract but not yet closed) or it could be contingent on the successful sale & closing of your current home (assuming that your current home has not yet gone under contract).


*  Clear Title:  Most contracts in the Virginia area are contingent upon the seller being able to convey the home to you with a general warranty deed and a clear & marketable title!  This is the strongest way that property can convey in the state of Virginia.  Sometimes, however, with a foreclosure or an estate sale, you may not be able to get a general warranty deed, or there may be some clouds on the title that need to be removed.  This is where a good real estate attorney will be able to advise you and let you know how you can proceed.


*  Home Owner Association Document Review:  If you are buying a townhome or condo, or a single family home that is in a community with a Home Owner's Association, you will have a statutory right to review the package that you receive from the seller and decide if you can live with the association's rules & regulations.


*  Insurance Coverage:  If you buy a house you will need to put insurance on the property.  Most lenders will do a check to see if you are in a flood zone, and if the house falls into a flood zone that requires flood insurance, this could be quite costly.  In addition, many insurance companies are now checking the previous claims history of the house you will be purchasing and, if there are claims for water or fire damage, this may also cause your insurance rates to jump.  So many buyers are now making their offers contingent on the lenders not requiring flood insurance and making sure that the insurance premiums are reasonable.


*  Short Sales:  Although there are not as many short sales on the market as there were a few years ago, these types of sales still come up every so often.  If you are thinking of purchasing a short sale, there will be certain contingencies you will want to incorporate into your offer:  how long you will give the seller to get the needed approvals from their mortgage holders, when you will do your inspections, when you will close on the property, when you will want to provide the earnest money deposit on the contract.  These types of sales will be a little bit more complicated, so make sure that your Buyer Agent is familiar with these type of sales!


*  Land Use & Soil Studies for Vacant Land:  If you are thinking of buying vacant land, there may be some additional contingencies you want to build in.  This may include a contingency to make sure that the land percs for whatever type of home you want to put onto the property, that the county zoning will allow you to do what you want to with the land.  There may be some acreage requirements from the county, or from the neighborhood association that could prevent you from using the land as you want to.


Of course, each contract is different and, depending on what you as the buyer are looking for, there may need to be other contingencies put in to the offer.  Over the years I have had several off beat contingencies added to contracts:  can a clothesline be put in the back yard to hang clothes on?  is there a radio tower or cell tower nearby?  can the owner have more than 5 dogs in their household?  can certain landscaping be removed from the property after closing?  


If you are thinking of buying a home, make sure you let your Realtor know those things that are most important to you so that these can be built into the offer as a contingency!  And make sure you understand the contingencies that are in your offer and how they will impact your ability to close in a timely manner!  And if you are a seller, make sure that you understand just how the contingencies that are in the buyer's offer will impact your ability to move onto your next home!


Thinking of selling a home?  Thinking of buying a home?  Have a question?  Feel free to contact me and I would be happy to help!  Have a great day!







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Barbara A. Reagan


Long & Foster Realtors

2931 Polo Pkwy

Midlothian, VA  23113

Phone:  804-869-1191


Barbara A. Reagan - Long & Foster Realtors - 2931 Polo Pkwy - Midlothian, VA  23113