Resolving Contingencies When Buying a Home & Related Legal Issues
Your offer to a seller and the eventual purchase and sale agreement will include various contingencies that must be resolved before the deal can go through. These are certain conditions on either or both sides. When a contingency has been resolved, that party or their agent or attorney will need to provide a written release. Failing to resolve a contingency can result in renegotiating the deal or simply abandoning it.
Resolving Financing Contingencies
The main financing contingencies usually involve getting a loan (or adequate alternative financing) and an appraisal. The loan must meet the terms provided in your purchase and sale contract and be acceptable to you. You should wait until you receive the approval or commitment letter from the lender before you resolve this contingency.
The appraisal, which also will be sought by the lender, is a way of ensuring that you are paying an appropriate amount for the house and not borrowing more than what the house is worth. If the appraisal is lower than what you are agreeing to pay but no lower than the amount that you are planning to borrow, you still should get approved by the lender. If the appraisal is lower than the amount that you are planning to borrow, you may face problems in getting a loan. You can always check the appraisal for mistakes, discuss issues with the appraiser, or get a second appraisal.
Resolving Inspection Contingencies
Once you receive the inspection report, you will want to determine which problems can be fixed and how much it will cost to fix them. If a problem cannot be fixed, you must decide whether you can live with it. (If not, you should have the option to back out of the deal entirely.)
The next step, for problems that can be fixed, is to determine who handles the cost of fixing them. Getting the seller to handle all or some of the costs may be feasible if they are eager to sell the home. The cost can be reallocated by reducing the sale price or getting a credit from the seller for part of the purchase price. You can also hire someone to fix the problem before the closing, with an agreement that the seller will pay for it, or you can agree with the seller that they will hire someone to fix it at their cost before the closing. Both of these options are riskier and can lead to complications down the road, so you should try to avoid them if possible.
Addressing Issues Uncovered by Inspections
Decide to live with it;
Ask the seller to reduce the sale price or offer a credit;
Ask the seller to fix the issue at their cost;
Decide to fix the issue yourself; or
Exercise an inspection contingency and cancel the contract
If you are buying a newly constructed home, you probably have arranged for a final inspection before the house and the deal are completed. You may want to go through with the closing, especially if your plans to move are already in place, while agreeing in writing with the developer that the money needed for the repairs will be taken from the purchase price and put in a trust account. The developer can access the money when the work is completed, and you can provide that it must be completed by a certain deadline. In the event that your contract with the developer does not allow for this type of arrangement, you can make the developer sign a statement listing each repair that it will complete, with a completion date for each of them, before the closing.
Resolving Common Interest Development Contingencies
You may need to review and approve the documents related to your development, such as rules that the community association imposes and documents indicating its financial stability. Your agent or attorney can review them and advise you on whether any problems are likely to arise. Also, you may need to get approval from the co-op board if you are moving into a co-op, which will involve meeting the requirements of the proprietary lease. In other situations, you may need to apply for membership in the community association and pay a move-in fee. Any of these steps will need to be completed before you can complete the purchase in most cases.
Failing to Resolve a Contingency
There are three main options if you cannot resolve a contingency. You can decide to waive or release the contingency, which means that the deal will still go through without the condition being met. If the seller is open to renegotiating, you can potentially adjust the terms of the contract and still proceed with the purchase. If you decide to back out of the deal entirely, you should make sure to cancel the contract through a release that the seller and you sign. You should be able to get your earnest money deposit back.