If you were paying attention a few weeks ago, we talked about some strategies for making a successful offer on a home purchase. The goal was to help new buyers ensure that their bid would be accepted over the others (assuming there were competing offers). While I talked about eliminating as many "stumbling blocks" as possible, these were intended to allow your offer to rise to the top of the heap and make it easy for the sellers to say "yes."
For some reason, the universe (if you subscribe to that sort of thing), has been teaching me the lesson that there are always two sides to every story. Be it the anti-fracking folks trying to retain their potable drinking water or the anti-Monsanto groups working for food that has not been through Frankenstein's lab. This week I'd like to talk about the flip-side of the simple offer. Granted, minimal contingencies might make your offer easier for the sellers to accept, it could also leave you exposed, and even forced to buy the home regardless.
One of the more common contingencies is used by buyers who are also selling their home. This allows for the sale of the home to occur before the new deal is finalized. As a seller, this would be a bit of a turn-off for that particular offer, but from the buyer's side, it is essential. Of course, there are folks out there who don't need to finance their homes and for them the risk is far less. There are also tax implications for the sale of a home and ways in which buyers can mitigate their tax burden from the apparent proceeds. These are all important to consider.
I have always encouraged my buyers to include some sort of financing contingency as well. Most sellers would not even consider an offer that did not include proof of financing. Having this text in the offer protects the buyer in the off-chance that something goes awry with their mortgage. Although I've never heard of this actually happening, without this in place the sellers could actually sue for "specific performance." Clearly not a position you want to be in.
An appraisal contingency is very similar to the financing contingency since if the property in question does not appraise, the bank won't lend you the money anyway. This is more common with homes that are not being fully financed and for investment properties. While it may lean in favor of the buyers, you normally don't want to be "upside down" on your home before you even sign the paperwork. It is best to have a professional evaluate the home and give you the peace of mind you deserve.
A few of my friends have purchased "fix-er-uppers" throughout New Hampshire. Even though they were fully (or mostly) aware of the project in front of them, there were still a few items that needed to be taken care of prior to closing. Don't be afraid to include these repairs on your offer. While it might gum-up the contract, it is far better to have it in writing than to expect a mutual understanding based on a verbal conversation.
Having a professional evaluate the home is also important with inspections as well. Unless you are a professional contractor or builder, having an inspection contingency just makes good sense. On most purchase and sales agreements, the inspection contingencies are standard. It is simply up to you to make sure the correct boxes are checked.
When you are going through the closing process, you are typically offered title insurance. My advice would be to get a little ahead of the game and include some sort of title contingency. This will simply ensure that the seller is, in fact, the actual owner of the home. "Certainly in New England and New Hampshire, there were lots of transactions that went down with not much more than a hand-shake," notes Badger Realty agent, Kevin Killourie. He continued, "If I were in the process of buying an older home or even a tract of land, I would ensure that there was some sort of paper trail. It just makes good business sense."
As I mentioned above, there has to be a balance in this whole process. As a buyer, I want to be sure that I'm covered and I'm protecting myself throughout this process. Can I get insurance? Can I get financing? Is that hole in the roof fixed? But from the seller's perspective, they are going to take the simplest and least complex offer that comes their way. The seller is going to be looking for the contract that is least likely to fall apart. This typically means having the fewest contingencies. The trick is to find the appropriate balance so both sides of the deal are content.