The housing market continues to be hot, hot, hot!
Generally speaking, it is a seller’s real estate market and anyone planning to buy a home should be prepared for stiff competition. Tight supply conditions and strong demand have made the housing market highly competitive and fast-paced. Quick sales and multiple offers have become the norm..
So if you do find a house that you want to buy, how does this hot real estate market impact the type of offer you want to make? Specifically, what impact do the home buying contingencies that you might want to include in your offer have on the likelihood of your offer being accepted?
What is a contingency clause in real estate?
Let’s start at the beginning – what is a contingency clause? A contingency clause is sometimes attached to an offer to purchase real estate and included in the real estate contract. Essentially, a contingency clause gives parties the right to back out of the contract under certain circumstances that must be negotiated between the buyer and seller.
When a house is listed as contingent, it means that an offer has been made and accepted, but before the deal is complete, some additional criteria must be met. Understanding the most common types of home buying contingencies prepares you to make a competitive home buying offer that protects your interests and entices sellers.
What are the most common types of contingency clauses?
There are a variety of different home buying contingencies that you can make use of as the buyer, but the most common ones are for financing, or your ability to secure a mortgage and inspections.
A financing contingency, or mortgage contingency, gives you as the buyer time to obtain financing for the purchase of the home, or gives you the right to back out of the sale if financing is not available. But, in today’s hot real estate market, buyers need to be prepared to act fast, so it is recommended that you get pre-approved for a mortgage loan before even finding the house you want to purchase.
Having a pre-approval shows the seller that you are a serious buyer, and will give you an edge if there are multiple offers on the house. In some cases in the current market, a lender’s pre-approval letter are required to schedule a showing or attend an open house.is
In the homebuying process, inspections are for the benefit of the buyer. The inspections, including the general home inspection, mold inspection, and wood destroying insect inspection, allow you to get a full picture of the condition of the home that you intend to purchase. An inspection contingency ensures that you receive the information and can negotiate repairs, sale price, or even walk away with your earnest money altogether.
In a hot real estate market, buyers may feel pressure to forgo home inspections in order to win a bidding war. But, be aware that skipping inspections is risky and there may be other ways to strengthen your offer.
An appraisal contingency protects you as the buyer by assuring a property is valued at a minimum, specified amount – usually the purchase price. If the property does not appraise for at least the specified amount, the contract can be terminated, and in many cases, the earnest money is refunded to the buyer.
Home Sale Contingency
This contingency allows you a specified amount of time to find a buyer for your current home or states that in order to purchase the contracted property you will need to sell your existing home. If you are not able to secure a buyer for your existing home, you may opt to walk away from the sale with your earnest money deposit still intact. In the current real estate market, sellers may opt to accept lesser offers without a home sale contingency to have more a “sure” sale of their home.
At Priority Mortgage, we believe that the mortgage loan process should be easy and stress-free. If you need assistance, a mortgage expert who can answer questions is just a phone call away. For more information about the mortgage process or to get started, contact us today.