The real estate market in Chelmsford, MA is red hot! The inventory of available homes is lower than usual and the number of buyers looking for properties is growing. The reason for this is that the economy is getting better, housing is more affordable and interest rates on a 30 year fixed mortgage have started rising from record lows. The market has shifted from a buyer’s market to a seller’s market and you can expect to find yourself in a bidding war. As a Real Estate Broker in Chelmsford, MA, I advise my buyers on the best way to win the deal and my sellers on the best way to get into a bidding war. This article talks about contingencies and how they hurt your chances of getting the home of your dream.
Congratulations! You’ve just found the perfect house and you are ready make an offer. The first step to getting the house you love is to put together a contract called an offer to purchase. If the contract is agreed upon by both parties, it binds the two parties into an agreement. The seller has agreed to sell you the house and you agree to pay the seller the purchase price. What if the seller decides not to sell you the house after signing the contract? You as the buyer would have legal recourse to force the seller to sell you the property. But what if, as the buyer, you decide not to purchase the house? As a buyer, you back up the contract with a deposit that the seller accepts in good faith. If you do not honor the terms of the contract then the seller gets to keep the money you put down as a deposit.
What are contingencies?
A contingency in a contract is a condition or event that changes or alters the terms of the agreement. Every contingency is different and some are more or less likely to occur than others. In the world of real estate we use contingencies to protect both buyers and sellers. It is important that you discuss contingencies with your agent and how they may impact your ability to win the deal. An experienced agent will be able to advise you on which contingencies are necessary and how to add them to your standard offer to purchase.
What are some examples of contingencies?
The standard contingencies for the buyers may include both a home inspection contingency and a mortgage contingency. A home inspection contingency allows a buyer to further inspect a property after their offer has been accepted. A good licensed home inspector can cost a few hundred dollars, so as a buyer you want to make sure you have secured the property by contract before investing in the additional fact finding. In the event that the inspector finds something unexpected that the buyer doesn’t like, the buyer can invoke their contingency and receive a refund of their deposit and terminate the contract. The second most common is a mortgage contingency. The mortgage contingency allows a buyer to attempt to purchase a house using money loaned to them from a bank. In the event that the buyer applies for a mortgage and is unable to obtain a mortgage, then the buyer may receive a refund of their deposit and terminate the contract.
Contingencies exist for sellers as well. A seller may add a suitable housing clause into their contract. The suitable housing clause allows the seller to shop for a new house and in the event that they are unable to find the right house, they can terminate the contract and return the buyer’s deposit. Another popular seller contingency occurs a lot with short sales when a seller states “Subject to 3rd party or lender approval.” The seller is willing to sell, but without a 3rd party or bank approval the seller may void the contract.
The above are common contingencies that buyers and sellers may encounter in today’s market. However, there are hundreds of contingencies that can be added to a contract to help protect a buyer or seller for their particular situation. It’s always best to get legal advice from an attorney regarding any contract or contingency.
How do contingencies affect my chances?
In today’s hot market you face stiff competition. It’s important to discuss with your agent what the ideal contract looks like to a seller. Price is only one factor and it is important to find out what will make the seller happy. Typically the ideal contract is an all cash offer at the highest price with no contingencies and a closing date that makes the seller happy. First time home buyers are going to run into a few houses that investors can make an offer all cash with no contingencies. The more contingencies you add to your contract the less chance you have to win the deal. I’d recommend avoiding ridiculous contingencies that do nothing but hurt your chances of getting the right home. For instance, if you’re going to be facing a bidding war on a condo, it’s probably best not to write in “contingent upon review of all condominium rules and regulations”. This information is available and a good buyer’s agent can get it for you before you make an offer. Read it through and do yourself the favor of making your contract stand out from the rest. Don’t lose the deal because you seem hesitant through contingencies. Make a strong offer that creates a sense of confidence for the seller.
If you’re a first time home buyer, it’s important to remember that this is one the biggest investments of your life. I always recommend that anyone that is not a seasoned real estate investor hire a licensed home inspector before purchasing a property. This is an important contingency because you really need know what you’re getting yourself into before you entirely commit to the purchase of a home. I would also recommend keeping the mortgage contingency if you don’t have enough money to pay cash. There will always be another home and it’s important to think rationally especially when things get out of control. Ask your Ready Real Estate agent what their advice would be and do what’s in your best interest.
Additional Questions About Real Estate?
My name is Joe Ready. I am a Real Estate Broker in Chelmsford, MA. I am licensed in MA, CT and NH. I represent buyers and sellers in real estate transactions. If you have any questions about purchasing or selling real estate, please feel free to reach out anytime. I am always available with friendly free advice via phone 978-256-3335 or email firstname.lastname@example.org , www.ReadyRE.com
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