Buying a new home requires a lot of effort. First, you have to determine what kinds of amenities you need. Then you have to scour the local real estate listings to find appropriate properties. Finally, you need to make an offer on a home. You may have to continue visiting homes and making offers for months before you have any success when the market is competitive.
Trying to make your offer seem like the most attractive one often requires a little creativity. Some people offer more money or a more flexible move-in schedule. Others waive inspection requirements or choose not to include contingencies. Why should most sellers think carefully before submitting an offer without contingencies?
Contingencies protect you when circumstances change
There are many unpredictable elements involved in a real estate transaction. For example, a major system in the home could fail after you make an offer but before you go to closing. The appraiser sent out to establish the value of the property by your mortgage lender might decide that the home isn’t worth what you offered for it.
In either of those scenarios, your money could be at risk if you choose not to move forward with the purchase. When you make an offer, you usually also send earnest money, which could be anywhere from 1% to 5% or more of the asking price. Higher earnest money deposits are common when the market is more competitive.
Without contingencies creating certain limitations on the sale, like that the home passes inspection or remains in the same condition, you might lose your earnest money if you try to withdraw from the transaction.
Including the right contingencies when making a purchase offer on a home helps protect you. Understanding the risks involved with the purchase will make it easier for you to protect yourself.