Purchasing a new home is exciting, but now you have to work out the details of your closing contract. The closing contract will dictate all the terms of the home purchase, including financing terms, the home’s condition, who pays closing costs, and similar conditions.
For the most part, this procedure is handled by the real estate agent. They’ll go over the document with you, and you can simply sign on the dotted line. However, you might want to take a closer look and make sure you get the terms and conditions that fit your needs before closing.
Here are some contingencies you might want to make:
- Professional Cleaning
When buying a home, there’s an unwritten rule that the previous owner will clean it thoroughly before you move in. However, this tradition seems to be less and less common these days, and you never know what condition the home will be in when you get the keys.
You can save yourself the trouble by requiring that the existing homeowner either pay for a professional cleaning or do the cleaning themselves. Not every seller will agree, but if they’re in a hurry to close the deal, you could win.
- Closing Cost Delegation
During the negotiations, you’ll determine who will pay the closing costs, and it’s important to get it in writing. These closing costs include title search fees, title insurance, escrow fees, notary fees, transfer tax, and more.
You might choose to split the costs or delegate all of them to one party, and putting it in the contract means no one can go back on their word.
- Home Inspection and Appraisal Contingency
All homeowners should remember the home inspection contingency. It states that if significant and/or expensive flaws are discovered within the home, you can get out of the deal.
The cost of the repair must be significant in this case. A leaky sink, for example, isn’t enough to cancel the agreement. A leaky sink that’s caused by a deeper sewage issue that would cost $15,000 to fix, on the other hand, gives you the opportunity to walk away or at least renegotiate the sales terms.
An appraisal contingency is similar in that it gives the buyer walking power if certain terms are not met. In this case, the bank will appraise your property at a certain value, and if the list price is discovered to be higher than market value, you may be entitled to leave or renegotiate terms.
- Finance Terms
It might seem a little strange to put finance terms in your closing contract when the bank primarily handles those details. However, many people don’t realize that mortgages can fall through between the purchase agreement and closing. The bank could find a problem with the buyer’s application and deny the funds.
The easiest way to avoid this problem is through a financing contingency. It basically states that if the loan doesn’t come through, the buyer can walk away without question.
- Insurance Contingency
Though it’s not extremely common, some buyers will add an insurance contingency to their agreement. This is more common in areas where natural disasters have occurred or with older homes with a history of problems. Some carriers will refuse to cover the home because of the high risk.
By installing an insurance contingency on the property, you’re guaranteed insurance or you can walk. If you can’t get an insurance commitment in writing, you won’t have to purchase the home.
- Closing Date
To avoid confusion and false expectations, make it clear in the contract how much time is required for closing. Most periods are between 30 and 60 days, but it’s entirely negotiable.
You might choose a period shorter or longer than the 30-60 day time frame if one party needs to stay in their existing property longer, or they need to move as quickly as possible. This can easily be handled in the negotiations and then agreed upon in the closing contract.
- Sale of Existing Home
Any existing homeowner who can’t afford to pay two mortgages needs a house sale contingency. It stipulates that the home purchase is only good if their existing home sells.
Buyers should be reasonable about the time frame with this contingency, usually within 30-60 days. Most homeowners aren’t willing to keep their home off the market indefinitely while you wait for your home to sell. They’ll be reasonable enough to make sure you have the funds before making the purchase, but don’t push your luck.
- Kick-Out Clause
Beware of a kick-out clause a seller may have placed in the contract to counteract your house sale contingency. A kick-out clause enables the seller to continue marketing their property, and if another buyer steps in, they may be able to sell out from under you. Usually, the seller will give the homebuyer something like 72 hours to remove the house sale contingency or they’ll kill the contract.
- Fixtures and Appliances
Oftentimes, homeowners will take their kitchen range, refrigerator, washer and dryer, and other fixtures and appliances with them when they move. If you would like any of these fixtures to stay behind, don’t assume they’ll do so without written consent. A verbal agreement isn’t binding, so you’ll want to get it in writing.
- Clear Titles
When you add a clear title contingency to the contract agreement, you’ll have access to the full and official history of the property’s ownership. This is useful for making sure the owner has full and legal rights to sell to you without liens, disputes, and other issues.
If there are issues with the existing ownership, it makes the sales process more complicated. If issues cannot be resolved, it gives buyers a way out.
These are the most important contingencies to include in your agreement, but they’re not necessarily the only options. Carefully consider your wants and needs and discuss your options with a qualified real estate agent.
Make Your Home Purchase with Green Residential
The contract can be difficult to negotiate if you don’t know what you’re doing. The certified home sales team at Green Residential in the Houston metro area can help. We have experience in helping both buyers and sellers negotiate to get what they want. For more information about the home buying process and what you can do to prepare, contact us today!