When you’re selling your home, you come upon many terms you may not have heard before. For example, earnest money is money paid upfront as a show of good faith. A third-party escrow company holds the money until the sale completes or falls through.
A contingency is a condition added by the buyer to their purchase offer. If the seller fails to meet that condition, the buyer gets to keep his earnest money and can choose to walk away from the deal.
Now that you understand these two important terms, let’s take a look at some of the most common contingencies buyers include in their purchase offers.
This contingency states that the offer is based on the return of a satisfactory appraisal. If the value of the home comes back lower than the asking price, the buyer can choose to negotiate a lower price or walk away from the deal.
This contingency allows the buyer a chance to find financing for the loan. This protects the buyer should he not be able to find a lender or fails to qualify for the amount he needs to purchase the home.
3. Home Sale
This contingency gives the buyer a chance to sell his current home before purchasing the new one. Should the buyer fail to sell his current home, he gets to keep his earnest money.
This contingency used to be a common addition to purchase offers, but these days, most sellers decline an offer that includes this contingency.
This contingency is dependent on the inspection coming back satisfactory. If the inspection reveals any necessary repairs, the buyer can negotiate to have the repairs done by the seller or for a lower purchase price, or he can walk away with his earnest money.
This contingency protects the buyer should problems be revealed during the title search. Common problems that occur include unpaid debts and contested ownership of the home.
Selling a home can be confusing but understanding the terms and the process can make things go more smoothly. If you’re selling your home, be sure you understand how earnest money and contingencies work.