5 Most Common Home Purchase Contract Contingencies
When a buyer writes up a contract on a home to purchase, there will be certain criteria in the contract that have to be met to both the satisfaction of the purchaser as well as the bank or lender who is giving that buyer the money to purchase the home. These criteria, or contingencies, are considered to be standard home buying contingencies. There’s many different contingencies and clauses that a buyer could put in the contract, but what we will be covering today are the 5 most common home purchase contract contingencies that we are seeing in our office for the homes that are going under contract in the Omaha Metro Area. The 5 most common home purchase contract contingencies are: 1. Contingent upon purchaser’s satisfaction with the home inspection 2. Contingent upon passing the radon inspection 3. Contingent upon the home passing the appraisal process 4. Contingent up passing termite/pest inspection 5. Contingent up getting final mortgage loan approval A fully executed contract means an offer on a home has been made and the seller has accepted it, but the finalized sale is contingent upon passing the above contingencies. If any of these contingencies do not pass or get resolved so that the buyer and seller can move forward, the contract will terminate and the earnest deposit will be returned to the buyer in most cases. It’s very common for the buyer to pay for all of the upfront inspections and appraisals and then the seller paying for the repairs to release the above contingencies.
1. Home Inspection Contingency Immediately upon contract acceptance, the purchaser will hire a professional home inspector to inspect the home. The inspector will be at the house for about 3hrs on their own and then towards the end, the buyer’s agent and the buyer will meet the inspector at the home to go over the findings. At this point, the buyer will have 3 choices. Terminate the contract if they are not satisfied with what the inspector found, release this contingency and move forward with the next step of the closing process, or most likely, put together a list of items they are asking the sellers to repair prior to the closing date. After the list of items are sent over to the seller, the seller can accept the list of repairs or counter back. If the seller and the buyer agree on the final list, the home inspection contingency will be released and the contract will move forward with the next step. If the seller and buyer do not agree, the contract will terminate.
- Radon Inspection Contingency
The purchaser can hire a separate radon inspector, but what will happen most likely is that the home inspector will also be the radon inspector. A radon test kit will be dropped off and placed in the seller’s basement and then the test kit will be picked up about 3 days later. Most all of the Omaha real estate brokerages will have addendums pre-drafted stating that if the test comes in at an unacceptable level determined by the EPA of 4.0 or above, that seller will install a radon mitigation system prior to closing. As long as the seller as a regular basement and not just crawl space, we’re seeing these radon mitigation systems being installed for between $900-$1000.
- Appraisal Contingency
With this contingency, a third party hired by the lender evaluates the fair-market value of the home. In the event the appraised value is less than the sale price, this contingency lets the buyer back out of the deal. The 3 most common types of appraisals are for conventional loans, FHA, and VA loans. For a conventional loan appraisal, the appraiser will come in and provide a dollar amount value on the home. The FHA and VA appraisers will do that as well, but they also have another duty to check the home so that it meets FHA and VA insurable standards. They types of things they are looking for to be repaired prior to loan approval are (bad roofs, chipping paint, wood rot, loose handrails, bad flooring, and other items) If any of these items get tagged, the seller will not be able to sell the home to a VA or FHA buyer unless these items are fixed and the appraiser comes back to approve the repairs.
- Termite Inspection Contingency
The title company will order a termite inspection prior to closing. The termite inspector will look for current termite and carpenter ant damage. If none is found, the termite inspector will provide a confirmation report stating that the home passed and this contingency is automatically released. If pests are found, the termite inspector will provide an estimate of repair costs. The purchase contract that was initially accepted will typically state that if repairs are required, as long as the repair estimate is less than 2% of the sales price, the seller agrees to pay for the treatment and the seller and buyer move forward with the transaction. If the repair estimate is 2% or more of the sales price, then either party can terminate the contract.
- Mortgage Contingency
Last but not least, most purchase agreements with the seller is conditional on the buyer being able to obtain a mortgage on the property. If the prospective buyer cannot get a mortgage within a fixed period of time, the buyer can terminate the contract. At Heeran’s Home Team at RE/MAX Platinum, we require mortgage pre-approval letters to be submitted with the initial purchase contract. This means that the prospective buyer has already provided preliminary information to the mortgage lender or broker to see if they can qualify for a mortgage loan. The buyer’s will then provide proof such as (bank statements, paycheck stubs, tax returns, and other information) requested by that mortgage broker or lender. As long as everything checks out and the home passes all of the other contingencies, the final underwriting of that mortgage will be approved and the buyer will have the money from that mortgage broker or lender to close on the home. If any of the above contingencies fail and the contract terminates, the title company that has been holding the earnest deposit will return the earnest deposit back to the buyer. These are the 5 most common purchase contract contingencies to pass when buying or selling a home in the Omaha Nebraska Metro Area. If you have friends or family who are looking to buy or sell real estate in the next 3-6 months, we would certainly appreciate your referrals. Please call Heeran’s Home Team at RE/MAX Platinum at (402) 707-7878 for a complimentary home selling or buying consultation.