Know The Contingencies To Your Purchase And What They Mean To You

 

Alan May wrote a post today about a potential buyer wanting to see the Association's Financials ahead of writing an offer. He went on to explain that this was a contingency and that the buyer would have an opportunity to back out later if they didn't like what they saw in the records.

It prompted me to expand on that subject. Many buyers do not fully understand the contingency period and what this actually means to them.

For instance the home inspection contingency. The most common misunderstanding is that as long as the seller addresses the issues found in the report, they must go forward with the purchase. This is not true. The report is to give the prospective buyer information....just because a seller is willing to fix something, doesn't mean you now must buy the home. It could be that you discover something which might be an ongoing problem...and not something you are willing to accept.

An example of this could be tree roots pulling up a sidewalk. The seller might repair this, but roots will continue to create a problem going forward.

Here are some other contingencies for a purchase contract in California, and what they might mean to you as a buyer. Any one of which you might find unacceptable and could cause you to cancel the purchase.

• Home Inspections: I touched on this briefly above. But this contingency allows allows for geological surveys and other inspections as you consider necessary.
• Termite Inspection: With short sales and bank-owned sales, it's becoming less common for a seller to provide termite "clearance." Even if they do....there are also what is known as "Section 2" items on most reports. These Section 2 items are conditions which could lead to a problem later on, not a current problem. A good example might be a brand new structure which has wood in direct contact with the ground. Since it's new, there is no wood rot present, but left there, it's only a matter of time, so you would be facing a large expense in the future.
• Appraisal: Of course you want the home to be worth what you are paying for it. But more importantly, without this contingency, you might be liable to make up the difference in cash between the value the lender will lend on and what you offered. This make this contingency a separate and important one from Loan Approval.
• Loan Approval: Clearly you need to be able to get financing on the offered terms.
• Insurability: More and more we are seeing this as a stumbling block to the close. I highly suggest getting your insurance agent working on this the minute you know you are in escrow. A large payout to a previous owner, for plumbing or slab leaks as an example, might prevent your insurance company from insuring. You might also be located in a flood zone or fire hazard area and the rates could be much higher than you're willing to accept.
• HOA: You will be provided the CC and R's for the HOA. Do not just file these with other papers to be referred to later if you need them. READ THEM! You might have a dog which is unallowed. You might find the Association is being sued. You might see a large assessment is on the way. This could impact your family and financials more than almost any other part of the process.

The above is a brief description of the contingencies which must be taken seriously during the contractual time frames. This is not just a check list of items to get "through" but your protections from making a serious mistake. You and your agent should discuss these in more detail and really explore them before removing any contingencies and moving forward.

 

 

 Karen Fiddler
Broker/Associate
The Fiddler Realty Team/eVantage Real Estate
Lic # 01494165

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