Homebuyers: 3 'Weasel' Contingencies a Contract Needs
Contingencies are the conditions that must be met for you to agree to honor your purchase offer. Privately, real estate agents call them "weasel clauses" because they allow buyers to cancel a contract without paying a penalty and with a refund of their earnest money deposit.
If you are a buyer, these three contingencies are your best friends and should be included in whatever offer you write:
1. The deal is contingent on you selling your home first.
This applies only to those buyers who need the equity out of their existing homes in order to buy another one. In this market, homes stay on the market an average of 292 days. When a seller sees that your offer is being made contingent on the sale of another property, he isn't going to like it.
Yet the fastest route to the poorhouse is to saddle yourself with simultaneous loans on two properties. Your agent may tell you that you can get a loan to temporarily carry you over until your first house sells. Think long and hard about this option. You really don't know how long it will take for your house to sell, and you don't know how much it will sell for. Do you really want to get stuck holding that bag?
A smarter course is to sell your house first and write in your own contingency clause: That you are accepting your buyer's offer contingent on finding an acceptable house that you want to purchase. If you don't find a house, you don't sell yours. This experiment ends with your life savings intact.
A second approach is to make your purchase offer with your home-sale contingency in place for 21 days. The seller can keep the property on the market for backup offers, and you'll have a few weeks to figure out what your house will sell for. If after 21 days you don't have a buyer, your choice is to remove the contingency clause and buy the house anyway or your offer dies.
Remember: This is a buyer's market. You are in control. If a seller rejects your offer because of a contingency, move on to the next house or revisit the idea with him in a few months. Chances are, his house won't be going anywhere fast.
2. The deal is contingent on you qualifying for a favorable loan rate.
Interest rates are at all-time record lows. Problem is, getting the banks to qualify you for a loan at those low rates isn't a slam dunk. Put the highest rate and least-attractive loan terms you are willing to accept into a contingency clause -- and make sure you can afford it. You don't want to make an offer without knowing what your maximum mortgage will be, and since rates change daily, this is sometimes like trying to nail jelly to the barn door. But you can set a cap in your written offer of just what rate and terms you will accept.
Remember, you will have to move quickly in applying for a loan. Lenders are requiring a lot of information these days, including tax returns, pay stubs, divorce records and, of course, those all-important good credit scores.
3. The deal is contingent on a home inspection.
With so much emphasis on getting a loan these days, the importance of getting the property inspected is often off a buyer's radar. It shouldn't be. Make your offer subject to getting the property inspected, including for termites.
If the house needs a new roof or has foundation damage, you could be buying a far more expensive house than you figured on. A good inspector will list all the problems -- large and small -- which allows you to renegotiate the sales price with the seller. In some cases, you may ask the seller to physically make the repairs; in other cases, you can get a cash credit to apply toward the repairs.
It is acceptable for sellers, when they make a counter-offer, to put a ceiling on how much they'll pay to repair problems noted in your inspection. It's incumbent on you to then add your own cap for repairs. Should a major -- and expensive -- problem be discovered, you want some way out of the deal. Some may label that weaseling; we call it common sense.
Want to know more about home inspections? These AOL Real Estate guides can help:
- Home Inspections: What to Expect
- Video: Home Inspections: It Pays to Know What You're Buying
- Video: Home Inspections for Sellers: Prepping for the Sale
- Home Inspection Red Flags for Buyers
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