The legal out.
What Are They? Legal ways to change your mind.
Contingencies are your legal outs. These are the clauses that allow you to change your mind based on certain things happening. These contingencies can include anything from the inability to obtain a mortgage loan to failing a house inspection. The trick is that you can't get out a contract if you don't have a contingency approving it.
There are three typical contingencies in real estate contracts:
Other contingencies could include:
o Sale of prior residence-this means you will only purchase the new home if your existing home sells (obviously not a first-time homebuyer issue)
o Admittance to certain clubs-for example, if your new home backs up to an exclusive golf course, you may want to make it a contingency to buy the new home only if you can get into the golf club
o Approval of condo or co-op boards-some condos and co-ops require approval from the board before you can move in. While these aren't as popular as they once were, you can still find them in urban settings
o Pest inspection, asbestos, radon, lead, water, etc.-these all speak to the condition of the home
o Compliance with a building code-normally an issue for new construction You can make a number of issues part of a contingency. As long as both parties approve it, go ahead and include it.
The Top Three: A quick look.
The most popular contingency is the financing contingency.
This means that the sale depends on you actually getting the loan for the purchase amount. You must include details about the type of mortgage you are seeking, the lenders you are approaching and the terms of the loan. The contingency is the approval. Sometimes approvals take time, so you may want to include a fall-back contingency, saying that you will automatically have 30 additional days to gain approval if financing is not obtained by the closing date.
The inspection contingency is looking for structural problems and hidden dangers. The inspection contingency should include not only the house, but the property it sits upon. These inspections are typically required within five to ten days from the seller's acceptance of the contract. Be sure you get all the inspections you wish within the specified time frame. If you miss the window of opportunity, your inspection contingency is null and void.
Attorney approval is a must for every contract
This doesn't mean you have to have an attorney approve it. It just gives you the right to have counsel give advice on the contract. Of course, if you want to seek legal advice, get it before you sign a contract. There is little an attorney can do after the contract is executed. The only changes he or she can make are technical legal changes. They can't change a too-high bid or ask for additional considerations you forgot to include.
It's time to look at potential pitfalls
Here's what to avoid:
1. Not looking at the sales price and deciding whether it is really worth that much.
2. Not comparing apples to apples when comparing comps. You shouldn't expect to pay as much for a two-story house and one with three.
3. Making your best offer the first time out. Unless you are in a highly competitive market where homes are scarce, drop your top offer by 5-10 percent so you have some negotiating room.
4. Losing your perspective and getting into a bidding war that you cannot afford. Keep your top figure in mind at all times and walk away when you have to in the bidding process.
5. Not carefully looking at your contract before you sign. This could be extremely dangerous down the line. Be sure to take the time to read each and every word. If you don't understand something, call an expert. Remember that what is not there in black and white legally doesn't exist.
6. Being timid and not negotiating terms. You can negotiate anything in a real estate deal. Try for the moon. You may have to compromise on some things, but you may just get what you want. The longer the home has been on the market, the more you are likely to get.
7. Not keeping an eye on the bottom line for closing fees. It is easy to be surprised at the closing table by fees you didn't see in the contract. Be sure to clearly state in the contract who is responsible for paying for each and every item.
8. Not including contingencies that give you some outs if things don't go your way. Contingencies are your only way out of a deal. Make sure you put a contingency on your contract to cover all your "What ifs."
9. Not insisting on an inspection clause, an attorney approval clause and an as-is clause. These will also protect you in the event something doesn't go well.
10. Not talking to your attorney until after you sign is a mistake. Once you sign, the deal is done. You can only negotiate before the contract is signed. Call early.
That's It for Contracts and Related Matters
Time for a quick quiz on what you learned. Be sure to review the sections of the course related to your wrong answers!
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