What Are Contingencies?
Contingencies play a part in a real estate transaction and we as Realtors sometimes forget that this is an abstract concept to our clients. Hopefully this will provide a little more clarity into what contingencies are and what their purpose is in a real estate transaction.
Contingencies protect your earnest money deposit in the case that you discover something that makes you reconsider your decision to purchase the home. There are usually four main contingencies:
Home Inspection and other inspections
During this period is when you conduct the inspections you want to on the property. At the very minimum a regular home inspection will help you determine the condition of the home and report any visual health and safety issues found. If you have questions about other types of inspections we have outlined it in another post called “Types of Home Inspections That Buyers Can Do.” This contingency serves to show both parties the condition of the property before closing and if any repairs or credits need to be issued.
During this period both the buyer and sellers agents will complete a Agent Visual Inspection Disclosure (AVID) as well to note any visual defects with the property.
Appraisal
The appraisal contingency is present to make sure that you are paying the correct and fair price for the property. An appraiser is contracted out and is a neutral third party. They determine the value of the house in accordance with what you are going to pay for it. If there are discrepancies and it appraises lower, you as a buyer have the ability to try and renegotiate or back out of the transaction.
Loan
The loan contingency serves the purpose of making sure that the funds you are approved for are backed by the institution and that you can purchase the desired property. While you are dealing with inspections with the Realtor and the inspectors, your loan officer will be working on the other side to make sure the funds are backed up and ensure you can close by the specified close of escrow date.
Final Walk-Through
The final contingency is the final walk-through. This is necessary to verify that the property is in the same or better condition than when you initially said you wanted to purchase it. This is the final verification that there are not surprises and all requests for repairs have been completed.
*As a buyer you have a right to waive contingencies if you desire, but it is not recommended as these serve a purpose in the transaction to safeguard yourself and your earnest money deposit.*
Sacramento is my home and I want to share all the amazing things it has to offer with you! Restaurants, events, lifestyle, and more. Interested in Sacramento Real Estate? As a local Realtor, I have an appreciation for that too!