"Contingent Upon�"

Contingency Clauses Clarify Contract Terms

Contingencies are your legal outs. They�re the clever little clauses that, if properly written and inserted into the contract, allow you to change your mind based on certain things happening. Contingencies can include anything from the inability to obtain a mortgage loan to failing a house inspection. The trick is that you can�t get out a contract if you don�t have a contingency approving it.

Typical contingencies:

1. Financing or mortgage
2. Inspection
3. Attorney approval

Contingency Hit Parade

Financing:

The most popular contingency, especially for first-time homebuyers, is the financing contingency. This means that the sale depends on you actually getting the loan for the purchase amount. You must include details about the type of mortgage you are seeking, the lenders you are approaching and the terms of the loan. The contingency is the approval. Sometimes approvals take time, so you may want to include a fall-back contingency, saying that you will automatically have 30 additional days to gain approval if financing is not obtained by the original closing date.

Inspection Results:

The inspection contingency is looking for structural problems and hidden dangers. The inspection contingency should include not only the house, but the property it sits upon. These inspections are typically required within five to ten days from the seller�s acceptance of the contract. Be sure you get all the inspections you wish within the specified time frame. If you miss the window of opportunity, your inspection contingency is null and void.

Legal Thumbs Up:

Attorney approval is a must for every contract. This doesn�t mean you have to have an attorney approve it. It just gives you the right to have counsel give advice on the contract. Of course, if you want to seek legal advice, get it before you sign a contract. There is little an attorney can do after the contract is executed. The only changes he or she can make are technical legal changes. They can�t change a too-high bid or ask for additional considerations you forgot to include.

Think & Do Reminder

Probability and Outcome

Each contingency clause included in your purchase contract will have a specific potential impact on the outcome of your contract and closing objectives. Be sure they are definite and leave no room for interpretation.

Watch Out for These!

• Look at the cutoff dates for inspections. If these dates pass without the requested inspections taking place, you lose the right to have them. The more time you have the better. Of course, the seller thinks just the opposite. The less time they give you is better for them.
• Just because you insist on inspections, doesn�t mean the seller has to do anything with the information. You must put a clause in your contract (and offer) to either hold the seller accountable or, at the least, a process by which negotiations on those repair costs can be entered into the contract after the inspection. Your attorney can help guide you on the language for this preventative step.
• There should always be an "as-is" statement in the contract. This states that the seller warrants that the major components of the house are in good repair and working order at the time of escrow. Be sure to have the items included in this "good repair and working order" warranty listed to eliminate any confusion.
• Be sure to include notations about any home warranties (see Module 10 on Consumer Rights for more information about home warranties). If the warranties are not listed in the contract, they may not apply to the new owner (that means you as the buyer won�t be covered). A home warranty is a limited sort of insurance policy that covers the new homeowner for up to one year on the home. Some brokers insist on purchasing these policies to protect themselves from displeased new buyers.
• Does the carpet or flooring need replacing? You may be able to get the seller to swing the replacement. The same goes for a new paint job.

TIP

Talk to your attorney about what is and is not included in the contract while you are at it. You need to be absolutely certain and comfortable about the entire contract before signing it. The only items that can be addressed at the table are those that are allowed within the context of the contract itself. Be sure to set the parameters carefully so you have legal recourse should something go wrong in the process.

Other contingencies might include:

• Sale of prior residence�this means you will only purchase the new home if your existing home sells (obviously not a first-time homebuyer issue).
• Admittance to certain clubs�for example, if your new home backs up to an exclusive golf course, you may want to make it a contingency to buy the new home only if you can get into the golf club.
• Approval of condo or co-op boards�some condos and co-ops require approval from the board before you can move in. While these aren�t as popular as they once were, you can still find them in urban settings.
• Pest inspection, asbestos, radon, lead, water, etc.�these all speak to the condition of the home.
• Compliance with a building code�normally an issue for new construction.

Terms to Know...

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