Contingencies are Back
As Americans are adjusting to the new realities of rising inflation, some are regretting their expenditures. Many find their income doesn’t stretch as far as it used to. As the Federal Reserve has taken aim at inflation through a series of rate hikes this year, mortgage rates have soared. This has left an increasing number of would-be homebuyers questioning if they can really afford the cost of home ownership.
In the current environment, the housing market is starting to show signs of cooling. One such indicator is a renewed demand for contingencies, which were often waived as bidding wars became the norm in recent years. For those experiencing buyer’s remorse, these clauses can offer a way out of a deal.
Protect Your Deposit
To keep options open, prospective homebuyers should read the fine print to gain a clear understanding of what circumstances will allow them to step away from a transaction, without forfeiting their “good faith” deposit. The amount required to hold your spot in a deal varies and can run upwards of 10% of the purchase price.
Buyers risk losing this large sum of money should they break the contract signed with the seller. If the contract contains a clause detailing that the final purchase is contingent on certain metrics being met, would-be home buyers retain flexibility. This allows them to potentially walk away from a deal without any financial penalty.
Inspections, Appraisals, and Financing
Contingencies typically pertain to home inspections, appraisals, and financing. A material issue with any of these key aspects of home-buying could provide reasonable grounds to terminate a contract, and get your deposit back. To some extent, the flexibility may be limited by state rules, so it’s a good idea to lean on your real estate agent or attorney for guidance before signing anything.
Inflationary pressures have added more stress to the homebuying process. Contingencies can serve as a form of insurance and may help alleviate buyer anxiety. From there, it’s important to nail down the details of financing, as well as the home’s true condition and ultimate value.
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