Navigating the complexities of a home purchase, we gathered insights from twelve real estate experts and CEOs on the most crucial contingencies to include in your offer. From the necessity of an attorney review contingency to the importance of prioritizing a home inspection contingency, these seasoned professionals provide invaluable advice to secure your investment. Here are 12 essential contingencies to include in your home purchase offer and why:
- Include Attorney Review Contingency
- Add Escalation Clause to Offer
- Ensure Satisfactory Walk-Through Contingency
- Demand Clear Title Contingency
- Request Energy Efficiency Audit
- Verify Permit Contingency for Renovations
- Assess Microclimate Contingency
- Review Homeowners’ Association Contingency
- Mandate Appraisal in Financing Contingency
- Insist on Thorough Electrical Inspection
- Protect Yourself with Financing Contingency
- Prioritize Home-Inspection Contingency
Include Attorney Review Contingency
I think an attorney review contingency is absolutely essential in a home purchase offer. While some states require that both buyers and sellers have attorneys to review the contracts for home sales, it’s a good idea no matter where you are. This contingency usually lasts about five business days, but it can be extended to seven or even ten days if needed. During this time, the attorneys look over the contract’s terms, advising both parties on what those terms really mean and negotiating changes if they see something that could be problematic.
For instance, if there’s a problem found during the title search, like a cloud on the title, the attorneys will work to sort it out. They also handle any issues that come up from the home inspection or any repairs that might be necessary. What’s really valuable here is that during these negotiations, either side can decide to walk away if they can’t agree on terms that work for everyone involved. This contingency is a safety net that ensures you’re not stuck with terms you don’t understand or agree with.
Michael E. Farah, Founder, Realtor and Real Estate Attorney, The Farah Law Firm, P.C.
Add Escalation Clause to Offer
Creating strategic contingencies with my clients has won us many deals in this competitive real estate market. I have a list of creative contingencies we can use depending on the property and the situation. One of my favorites, which saves my clients thousands of dollars, is an escalation clause.
This clause states that the buyer’s offer will increase by a specified amount above the highest offer, up to a set maximum. For example: “Buyer’s offer to escalate $1,000 over the highest offer up to $550,000.” This helps protect the buyer from overpaying and ensures honest negotiations.
However, be aware that some sellers or agents might reject escalation clauses and prefer a straightforward “highest and best” offer.
Allyssa Guerin, Realtor, Lamacchia Realty
Ensure Satisfactory Walk-Through Contingency
A satisfactory walk-through contingency is crucial in a home purchase offer, ensuring the property is in the agreed-upon condition before closing. This contingency gives the buyer the right to conduct a final home walk-through, typically within 24 to 48 hours before closing. During this walk-through, the buyer verifies that all requested repairs have been completed, that no new damage has occurred, and that the property is in the same condition as when the offer was made.
If any issues arise, such as incomplete repairs, unexpected damage, or items that were supposed to remain with the home being removed, the buyer has the right to address these concerns with the seller. This could involve requesting additional repairs, negotiating a credit, or even canceling the purchase if the issues are significant enough. The satisfactory walk-through contingency protects the buyer’s investment by ensuring they receive the home in the expected condition.
Bill Lyons, CEO, Griffin Funding
Demand Clear Title Contingency
An important element to add to your home purchase offer is a title contingency. I once faced a situation where a title search revealed an unresolved lien on a property I was interested in. Having this contingency in my offer allowed me to address and resolve the lien issue before finalizing the purchase. This step ensured that the property’s title was clear and free of encumbrances, protecting me from potential legal disputes and financial burdens.
Including a title contingency is crucial because it safeguards the transfer of ownership and helps prevent unexpected complications that could arise after closing, ensuring a smoother and more secure home-buying process.
Jeffrey Pitrak, Marketing Account Manager, Transient Specialists
Request Energy Efficiency Audit
I highly recommend including an energy efficiency audit in a home purchase offer. It lets the buyer thoroughly assess the property’s energy performance and identify cost-saving upgrades or renovation opportunities.
A comprehensive energy audit can provide valuable insights into the home’s insulation, heating and cooling systems, windows, and other energy-consuming components. This information empowers the buyer to make decisions about the property’s long-term operating costs and sustainability.
By incorporating an energy-efficiency audit contingency, the buyer can negotiate for the seller to cover the assessment cost or even make certain upgrades before closing. An energy-efficient home can often command a higher resale value, as eco-conscious buyers increasingly seek out properties with proven energy performance.
Josh Qian, COO and Co-Founder, Best Online Cabinets
Verify Permit Contingency for Renovations
When planning renovations, a permit contingency is vital to ensure that the project can legally proceed as intended. This contingency gives buyers the opportunity to confirm that the required permits for their planned improvements can be obtained before completing the purchase.
If the permits are denied, the buyer can either adjust their plans or walk away from the deal without penalty. This protection helps avoid the frustration and expense of purchasing a property that cannot be modified as desired. By including this contingency, buyers can confidently move forward with their renovation plans, knowing they won’t face unexpected legal obstacles.
Brandy Hastings, SEO Strategist, SmartSites
Assess Microclimate Contingency
As a real estate professional, I recommend including a “Microclimate Contingency” in your offer to buy a house—it’s an overlooked concept but very useful.
This contingency requires that you evaluate the microclimate of the land and its nearest environment. A microclimate is a specific localized atmospheric zone that may contrast with a region’s general climate. It could involve peculiar wind flows, temperature ranges, levels of humidity, or even effects brought by plants around.
For instance, such a property can be found within regions characterized by high humidity due to closeness to water bodies or thick forests. This may affect various things, such as the durability of construction materials and the potential for molds and pests. On another note, houses located at the bottoms of hills or in particular valleys might encounter different extremes of temperatures or weather conditions than other dwellings nearby.
Through this clause, you can request an elaborate report on weather patterns that specifically influence this piece of real estate and how these elements can affect your future comfort and maintenance costs. This provision gives extra cover and understanding so that the environmental forces surrounding your new living area do not surprise you.
Johnny Austin, Owner, Sell My House Now LLC
Review Homeowners’ Association Contingency
In my opinion, if you’re buying a home that’s part of a homeowner’s association (HOA), it’s crucial to include a homeowners’ association contingency in your offer. This contingency gives you time to review the HOA agreements and covenants. Living in an HOA can come with a lot of rules and restrictions that might not be everyone’s cup of tea.
Adding this contingency allows you to review all the documents and decide if you’re okay with the conditions you’ll need to follow. It’s especially important if you’re aiming for a quick closing and haven’t had the chance to check out the HOA details before making your offer. This way, you won’t find yourself stuck with rules you don’t want to follow after you’ve bought the house.
Toni Norman, Senior Marketing Manager, Tingdene Residential Parks
Mandate Appraisal in Financing Contingency
One essential contingency I believe should be included in a home-purchase offer is a financing condition with an appraisal required. The reason for this is that over the past two to three years, house values have gone up and down wildly at different times. Without a contingency like this, a buyer who is closing on a property could find themselves in an extremely difficult financial position, especially if the property does not appraise at the desired amount.
If the property does not appraise, the buyer will be required to add additional funds to the purchase, and if they choose not to close on the property because they can’t get these funds, they’re going to find themselves in legal trouble. It’s not uncommon for real estate agents to push their buyers to make offers without conditions when there is competition; however, one needs to consider their own situation, needs, and goals to make sure that they can sleep well at night with their offer.
Sebastian Jania, CEO, Alberta Property Buyers
Insist on Thorough Electrical Inspection
When making an offer on a home, I always stress the importance of a thorough electrical inspection. As an electrician, I’ve seen the dangers of outdated or faulty wiring firsthand, and believe me, it’s not something you want to overlook. Older homes, especially, can have hidden electrical issues that pose serious safety risks, like fires.
A complete inspection goes deep—not just a quick look around, but a full examination to make sure the entire system is up to date and capable of handling today’s electrical loads. This step is important. It protects you from unexpected repair costs and, more importantly, ensures the home is safe. Always include this in your offer to avoid future headaches or dangers tied to electrical faults.
Bobby Lynn, Owner, LiveWire Electrical
Protect Yourself with Financing Contingency
When it comes to purchasing a home, there are many factors that should be considered in order to make the best decision. One essential contingency that I believe should be included in a home-purchase offer is a financing contingency.
A financing contingency ensures that the buyer has enough time to secure financing for the purchase of the home. This is important because securing a mortgage can often take longer than expected, and it’s crucial for buyers to have enough time to go through the necessary steps and paperwork.
If a buyer does not include a financing contingency in their offer and they are unable to secure funding, they could potentially lose their deposit or risk being sued by the seller. By including this contingency, buyers protect themselves from any financial losses and have a safety net in case their financing falls through.
Erica Nunley, Founder & CEO, Nunley Home Buyers
Prioritize Home-Inspection Contingency
One essential contingency that should be included in a home purchase offer is a home inspection contingency. This clause ensures that the buyer has the right to have the home professionally inspected within a specified period after the offer is accepted. Including a home inspection contingency is crucial for several reasons:
- Identifying Potential Issues: A thorough home inspection can uncover safety issues, structural problems, and other defects that may not be immediately visible during a casual viewing. This includes checking the condition of the roof, foundation, electrical systems, plumbing, and more.
- Negotiation Power: If significant issues are discovered during the inspection, the buyer can use the findings to negotiate repairs or a reduction in the purchase price. Without this contingency, the buyer would have little leverage to request such changes.
- Avoiding Future Costs: Identifying and addressing potential problems before finalizing the purchase can save the buyer from costly repairs in the future. This is particularly important for major issues like foundation damage or outdated electrical systems that can be expensive to fix.
- Peace of Mind: Knowing that a professional has inspected the property and provided a detailed report gives the buyer confidence in their investment. This peace of mind is invaluable, especially for first-time homebuyers who may not be familiar with the complexities of home maintenance.
In summary, including a home inspection contingency in a home purchase offer protects the buyer by ensuring they are fully informed about the property’s condition, which can prevent unexpected expenses and provide a basis for renegotiation if necessary. It is a critical step in making a wise and informed investment in real estate.
Guy Contaldi, Realtor
