Contingencies When Buying a Home - YouTube

When you buy a piece of clothing, you can try it on.

When you buy a car, you can test drive it.

When you buy a property, you have contingencies.

In this video, we will discuss some of the contingencies involved when buying a home

and how they help buyers to make an informed purchase.

Hello.

I’m Becky Park, a real estate broker here in Southern California.

Buying a home is a huge investment.

Not only are you bringing in a large amount of your hard-earned money as your down payment

and closing cost, but you are also taking on a large mortgage loan for the next 15 to

30 years.

Yet, a decision to purchase a particular home is usually made within several minutes of

viewing the property.

How can you be sure that you are making an informed purchase?

In California, there are certain conditions written into the contract that states buyer

and seller agree to move forward with the sale only when they are met.

The terminology that we use in real estate for these conditions is contingencies.

Let’s look at some of them.

Probably the most important contingency is the physical inspection contingency.

It is impossible to determine the condition of the property during a viewing; it’s just

too short of a time and most people do not have the expertise to identify any potential

issues.

Physical inspection contingency allows the buyer, to hire a professional property inspector

and any other specialists, at buyer’s own cost, to examine the condition of the property.

Once inspections are completed, you’ll receive reports identifying any issues and their remedies.

At this point, you can negotiate with the seller for repairs or walk away from the sale.

Since the inspection helps the buyer to get a true picture of what they are buying, waiving

this contingency is not recommended.

However, if you are already familiar with the condition of the home you’re buying

or are planning on a rebuild or do an extensive remodel, an inspection contingency may not

be important to you.

Next, is the appraisal contingency.

If the buyer is getting a loan, then the lender may require an appraisal to determine the

value of the property.

Once again, it will be at the cost of the buyer.

With the appraisal contingency, should the appraised value come in lower than the contracted

price, the buyer has a chance to renegotiate the purchase price or walkaway.

In an all-cash transaction, however, an appraisal is not necessary; and that is the reason why

when all other terms are the same, sellers prefer an all-cash buyer.

In today’s competitive market, waiving the appraisal contingency could increase your

chances of your offer being accepted.

So, is it safe to waive the appraisal?

It depends.

If you are putting in a large down payment or have funds to cover any discrepancy in

the purchase price and the appraised value, then there won’t be an issue getting a loan.

If, on the other hand, you are putting 20% down or less and don’t have additional funds

to cover the difference, then you may not qualify for the loan.

Loan is another major contingency in a financed transaction.

Most buyers start the home buying process with a pre-approval letter from a lender but

if you read the letter carefully, you’ll know that it’s a conditional approval.

A final or a full approval is only issued during escrow after a careful underwriting

review of your qualifications and the property you’re purchasing.

This is another contingency that the seller may ask you to waive in this market.

You should only waive it if you have the means to close on the transaction regardless of

obtaining a loan or if you have a full commitment from your lender.

As a buyer, you’ll have an opportunity to review the preliminary title report.

The preliminary title report is a historical record of ownership and any liens or judgements

on the property.

The title and the escrow officers will help review and address any issues so that a clean

title can be deliver to you at the close of escrow.

If there’s a problem that cannot be resolved in a timely manner, the approval of preliminary

title report contingency will allow you, as a buyer, to walkway from this deal.

If you are purchasing a home with a Homeowner’s Association, there are HOA documents such

as the CC&R’s, By-Laws, financials, Rules & Regulations, and the meeting minutes that

are provided to you during escrow.

While reviewing these documents, you should look for any upcoming increases in dues or

special assessments, the amount of reserves the HOA has, their pet policy if you are a

pet owner, and any rental restrictions if you plan on renting out the unit.

During escrow, you’ll also be provided with seller disclosures, including the real estate

transfer disclosure (or the TDS).

In it, seller discloses any material defects he/she knows about the property and any repairs

they may have done.

A natural hazard disclosure report will also be provided.

This report will show whether the property is in a flood, fire, earthquake fault, landslide,

or liquefaction zone.

You’ll have an opportunity to review these disclosures and approve of them.

There are additional contingencies such as the insurability of the property and review

of sex offender database.

All these contingencies that we have discussed so far will provide a safety net so that you

can make an informed purchase.

But these protections are not open ended; the buyer and seller have agreed in the contract

to a contingency removal date for each of these contingencies.

When you are satisfied with the conditions or contingencies, then you should remove them

by signing a contingency removal form so that all parties, especially the seller, can prepare

for closing and moving out.

If contingencies are not removed in a timely manner, the seller may issue a notice to buyer

to perform and cancel the sale.

Today we have covered contingencies.

There can be many in a transaction and may get complicated but with a help of an experienced

professional, you can navigate smoothly through the buying process.

Thank you so much for watching and see you again soon.