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
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.
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.
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
It's time to look at potential pitfalls
Here's what to avoid:
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
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
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
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
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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