Hi! Emily Farber from Lepic-Kroeger. Thanks for joining me today. I'm starting a new
series for buyers all about common questions buyers have in the home buying
process. Today's video is all about contingencies. What are they, and how do
you use them. Come on, let's go! So what is a contingency? A contingency is part of a
purchase agreement that protects you, the buyer, during the course of the
transaction. There are always going to be unknowns in a home purchase and those
contingencies provide exits, or exit doors, for you to leave the contract
should you need to. Some common contingencies in our market are: home
inspection contingencies and financing contingencies. The home inspection
contingency often means Whole home inspection, radon inspection and wood
destroying pest inspection. There can be other ones, also. Maybe you need to have a
well test, maybe you have questions about the structural integrity of a building
and you want to have additional inspections that way. The financing
contingency has to do, usually, with buyers who are working with a lender in
order to obtain a mortgage. There's a long process involved with getting a
mortgage and your financing has to make it through underwriting. Sometimes it
doesn't work out, in which case, you would not be able to purchase the house. Having
that financing contingency there means that if you can't get your financing you
can exit the contract. Another contingency that we often see has to do
with buyers who already own a home. So if you already own the home your lender may
say, "Yes, I'm happy to lend you some money in order for you to purchase a new home,
but you have to sell the first home first." In that case you would need a sale
of home contingency that would specify that you would not be able to purchase
the second home until the first home is sold.
Contingencies protect you as the buyer because they allow you to leave the
contract and keep your earnest money. So what if you need a contingency for
something weird? That's fine! We have a spot for that in the purchase agreement,
too. I like to call it "the everything and the kitchen sink contingency." So, what if
you are looking at a condo and you've read through the bylaws and it indicates
that you can have two pets, but, you have three. Now what? Well, you could always
write a contingency into the contract stating that you need written approval
from the HOA that two cats and one small Chihuahua will still be okay. You
certainly wouldn't want to purchase the property if that means that chihuahua
gets the boot, so that's something that you need to investigate. You write the
contingency into the contract, with a hard deadline, you do your due diligence,
you investigate whether or not that HOA board will give the thumbs up to Mr.
chihuahua, and if they do, then you're able to release that contingency and
move forward in the contract. When you're writing a purchase agreement you do need
to be judicious with your use of contingencies because if you have too
many of them the seller may view them as negative. Each contingency is an exit for
you out of the contract, so if your contract is covered with exits
protecting you, the seller may feel that it's not that strong of an offer and
they might choose a different one. Thanks for joining me. It's free advice Friday. I
put out new videos every Friday on all things real estate, easy do-it-yourself
projects and feature stories about the greater Iowa City area. I would
absolutely love it if you'd hit the subscribe button down below and give me
a like.