Understanding Contingencies In The Home Buying Process

Understanding Contingencies In The Home Buying Process

  • Liz Kroft
  • 08/17/23

Buying a home in California is an exciting journey, filled with possibilities and anticipation. However, it's important to understand the intricacies of the process to make informed decisions. One critical aspect you'll encounter is contingencies – those safeguards that protect your investment while ensuring a smooth transaction. Let's dive into the world of contingencies, unraveling their significance and potential impact on your home purchase.


Understanding Contingencies: Your Shield of Protection

In the realm of real estate, a contingency is a condition (sometimes thought of as a time period) that must be met for a contract to proceed. These contingencies act as a safety net, giving you the flexibility to walk away from the deal if specific conditions aren't satisfied, without losing your deposit. Your earnest money deposit is protected by these contingencies, shielding you from potential financial loss.


The Three Most Common Contingencies:

1. Investigation Contingency:
When it comes to investigating the property, you have the upper hand. You're empowered to conduct various investigations pertaining to the physical attributes of the property, neighborhood, reports, etc. – to uncover any hidden issues. If concerns arise, you can negotiate with the seller in good faith, requesting repairs, closing cost credits or a reduction in price.

In the California Residential Purchase Agreement the standard timeframe is 17 days. Depending on the property and circumstances sometimes buyers shorten this to make their offer competitive and in other instances it may require a longer timeframe.

2. Appraisal Contingency:
An appraisal is an independent evaluation of the property's value by a professional appraiser required by most lenders (though there are some circumstances where a lender can waive this requirement for a buyer). This ensures you're not overpaying for the property - or that your lender isn't loaning more than a home is worth. If the appraisal comes in lower than the agreed price, you have the right to renegotiate or walk away.

In the California Residential Purchase Agreement the standard timeframe for an appraisal is 17 days, though the vast majority of local lenders are able to have an appraisal ordered, conducted and reviewed in a shorter timeframe.  

3. Loan Contingency:
This contingency safeguards your financial interests. It gives you time to secure a mortgage. If you're unable to obtain a loan within the specified time frame, you're free to cancel the contract without losing your deposit.

In the California Residential Purchase Agreement the standard timeframe for the loan contingency is 21 days, though most lenders can accomplish this more quickly. This is why it is so important to be pre-approved for a loan (not to be confused with pre-qualified) prior to submitting an offer on a property. 


The Power of Protection and Considerations:

Contingencies provide you with peace of mind and an exit route if things don't align with your expectations. However, shortening or removing contingencies often increases the attractiveness of your offer but also amplifies the risk. You should weigh the benefits of a strong offer against the potential consequences of giving up these protections.


When to Consider Waiving Contingencies:

While contingencies are crucial, there might be scenarios where waiving them makes sense. In competitive markets, sellers might favor offers with fewer contingencies. However, it's important to consult your real estate agent and attorney before making such a decision. Generally, you might consider waiving contingencies if you've thoroughly inspected the property, are confident in its value, and have secured your financing.


In Summary:

As you embark on your home-buying journey, remember that contingencies offer a safety net for your investment. They empower you to make informed decisions while protecting your earnest money deposit. By understanding their significance and implications, you'll confidently navigate the real estate landscape and make choices that align with your aspirations and financial well-being. Connect with Liz Kroft today to begin your home-buying journey.

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With over nine years of full-time experience and more than $114 million in sales across the greater Bay Area, I work tirelessly to be a well-regarded agent, industry innovator, and ambassador for my clients.

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