Making offers with contingencies in a competitive market

Making offers with contingencies in a competitive market

Silicon Valley is home to one of the most competitive real estate markets in the country. Working in a market where homes are selling with multiple offers only days after being put onto MLS puts a great deal of pressure on both buyers and their agents. In addition to high interest level, over the past year we have seen a large influx of all cash offers. It is in an environment like this where the terms of your contract can make or break a deal. One of the most important terms of the purchase contract are contingencies. It is extremely important that buyers understand that contingencies are used to protect their 3% deposit in the event that they need to pull out of the contract. 

In the California and PRDS purchase contracts, there are 6 types of contingencies:

1. Financing (Loan) Contingency*:

• It is the buyer's responsibility to make a reasonable effort to receive financing on their purchase. Buyers are obligated to move forward with their purchase if they are approved to receive financing from the lender which they received their pre-approval from. Buyers are able to change lenders once their offer is accepted, however their offer shall not be contingent upon receiving any alternate financing. I always recommend speaking with your lender regarding how many days they will need to have you fully approved.

• If your home does not appraise at an amount that is equal to or greater than the purchase price, you may not be able to qualify for financing on that property. In the event that a home does not appraise, the buyer will have a choice to either pay the difference in price out of pocket, or to cancel their contract. I recommend discussing with your lender how long it will take to receive the appraisal. 

• It is the buyers right to acquire any inspections which materially affect the value and/ or desirability of the property. If new material conditions are discovered (which were not mentioned in the seller's disclosures) the buyer will have the option at that time as to whether or not they will move forward with the purchase. Regardless of whether or not my client includes the contingency, I recommend receiving your own property inspection to ensure all material evidence is known. 

• Properties built before 1978 are required by law to include a lead based paint disclosure. It states that homes built prior to that time may contain lead based paint. If that is of concern, this contingency will allow you the time to test for lead and recind your offer if lead is found. 

• The buyer shall take title subject to any existing easements, restrictions, or claims made on the property. Typically the preliminary title report is included with the seller's disclosures, however it is important the buyer reads and approves this report prior to finalizing the sale.