Boring Title: Navigating home purchase contingencies in a competitive real estate market

Title insurance is boring, but Allied Title & Escrow is here to decode the jargon and make it (somewhat) more interesting. This biweekly feature will explore the mundane (but very necessary!) world of title insurance while sharing interesting stories of two friends’ entrepreneurial careers.

What does a contingency period mean? This week, Kim and Hope Peele of The Peele Group at McEnearney Associates help explain contingency periods and how best to navigate them in a competitive real estate market.

Like any industry, real estate has a ton of lingo that isn’t common to most people. To me, it’s incredibly important that someone who is buying or selling a home has all of the information and resources that they need — before the stakes get high!

When I am working with both buyers and sellers, some of the most frequently asked questions are about contingency periods. These are lengths of time written into the
contract in which one of the parties has the option of voiding the contract, without penalty.

Of the many different types of contingencies, some are more common than others — so here is a quick guide to the top three contingencies that I am asked about most often.

Inspection Contingency — In some home sale contracts, there is an agreed upon number of days in which the buyer can hire a licensed inspector to examine the home
for defects. Sometimes the contract allows for the buyer to void during this contingency period, and sometimes there is also the option to negotiate repairs with the seller. If the buyer chooses to either negotiate or void, they must provide the seller with a report from a licensed inspector. In a hot “seller’s market” buyers can sometimes make this period very short, or even waive it altogether, to appeal to the seller.

Financing Contingency — This contingency protects the buyer in case something happens to their loan. Changes in things like employment and credit could potentially
put the loan in jeopardy. If there is any risk of this happening, it is important to have this contingency in place so that the buyer is not bound by the contract terms. Depending on where the buyer’s loan is in the pre-approval process, on occasion this can be confidently waived.

Appraisal Contingency — An appraisal contingency gives buyers security in case the appraisal from the bank does not come in at the contract price. The bank wants to know that the loan they are approving is worth it — so, if they conduct an appraisal that values the property less than the contract price, the buyer either needs to make up the difference or come to an agreement with the seller. Without an appraisal contingency, the buyer is responsible for what they agreed to in the contract — with or without a loan.

An appraisal contingency protects the buyer in case the bank will not allow the loan to go as high as the contract price.

Each buyer and seller should work closely with their Realtor to decide what is best for them in each particular situation. To learn more about contingencies, and to discuss your real estate goals, reach out to Hope Peele at 703-244-6115 or [email protected].

Have questions related to title insurance? Email [email protected]. Want to use Allied Title & Escrow when you buy a home? Tell your agent when you buy a house to write in Allied Title & Escrow as your settlement company!