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Congratulations! You received an offer. What can you expect it will look like? What contingencies will be included, and what do they mean for you and your bottom line? Read on to find out.
Typical Contingencies
Here’s what you can expect– if the market is competitive you may receive a “clean offer” meaning little to no contingencies. However in a typical market, buyers use contingencies to protect themselves and allow themselves to gain information about the home that may not be apparent on a tour. In a typical market, it is normal to see the following contingencies included in the offer: Home Inspection, Radon, Financing, and Appraisal Contingencies, as well as a Termite Inspection and Seller Subsidy. Let’s break down what each contingency entails below.
- Home Inspection Contingency – in this contingency a buyer will have a certain number of days to conduct a home inspection on your home and they can choose two options: Home Inspection with the Right to Void Only or Home Inspection with the Right to Negotiate. If the later is selected, the buyer can negotiate repairs OR choose to void the contract on the basis of the home inspection. Read more about the home inspection contingency here.
- Radon Contingency – radon is often included as part of the home inspection. This two full day test measures radon gas in the home. Throughout the duration of the test no windows or doors can be open in the house. The buyer will then have the right to negotiate with the seller based on the results of the radon test. Radon isn’t too difficult to mitigate however, you can read more about the radon contingency here.
- Financing Contingency – the financing contingency allows a buyer to finalize their loan. A good lender will tell a buyer how many days they will need to complete the loan process. If for some reason the loan falls through the buyer will have the right to void the contract. However, it is not common for this to happen. We confirm with the lender that the buyer is fully qualified and that the sellers risk is minimal. Read more about the financing contingency here.
- Appraisal Contingency – Almost all financing requires an appraisal but is most common with VA and FHA loans in which an appraisal is mandatory. An appraisal allows a buyer to ensure that the sales price of the home matches the actual value of the home. With this contingency, an appraiser will come to the home and assess its value based on condition, amenities, and comparables within the last six months. If the home does not appraise at the sales price value, a buyer has the right to negotiate the price, void the contract, or move forward with the contract as is. For more on the appraisal contingency check out this article.
- Termite Inspection – while not an actual contingency, the termite inspection is written into the sales contract. A buyer has the choice of selecting to pay for the inspection themselves, asking the seller to pay, or not including the inspection (however it is typically included). The cost is ~$60 and can be paid at the inspection or at settlement. If termites are found it is the sellers responsibility to take care of the remediation and any structural damage caused by termites.
- Seller Subsidy – also not a contingency, a seller subsidy can be a common addition to an offer. With a seller subsidy a buyer will ask the seller to contribute some amount to closing costs or buying down the loan interest rate.
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