Contingency, continued...

Last week, we explored the ins and outs of title contingency. Now, let’s talk about loan contingency and what it means for buyers — and sellers.

CHIC (Pearl)

Loan contingency is a clause that allows a buyer to cancel their home purchase contract without penalty and receive a refund of their earnest money deposit in the event they're unable to secure a mortgage. Like any contingency, this clause could make an offer less desirable to a seller entertaining multiple offers. But it may be necessary to avoid serious financial risk up to and including legal action or being forced to buy the property.

GEEK (Kevin)

Sounds like a catchy clause, and it may not be all that necessary. Our job as realtors is to provide you with a choice of high-quality lenders who will do their homework and ensure that your loan will be approved before it’s sent to underwriters. At the end of the day, it benefits the lender to ensure that you’re in a strong, lendable financial position headed into the offer process. We’ll explore this more under appraisal contingency in a future post.

Title Contingency

Contingency is a clause buyers include when making an offer on a home that allows them to back out of the deal without losing their deposit if the conditions of the clause aren’t met. So what is a title contingency, and should you include one in your offer?

CHIC (Pearl)

Title contingency protects a buyer against fraud by ensuring the seller is legally authorized to list the property. Imagine going through the whole purchasing process, including negotiation, offers, bidding wars, loan agreements, inspections, and more, only to find out the property isn’t available after all. Sounds like a good idea to me!

GEEK (Kevin)

Title contingency may sound great, but it’s actually redundant in California. That’s because when you buy a home here, either the seller or buyer are required to get title insurance, which clears any clouds around the ownership question. Typically a title check is also performed during escrow, so there are multiple protections for buyers.

Are you asking the right questions?

There’s no such thing as a stupid question, especially when it comes to selling your home. But it’s hard for a seller to know the right questions to ask if they’ve never done this before. That’s why it’s important to pick an agent who knows the answers. 

CHIC (Pearl)

Beyond the basics of price and commission, it’s important to ask an agent about their marketing strategy. How can they ensure your property gets maximum exposure in a crowded market? Related to this is timing. Is now the best time to put your property on the market? If so, why? If not, why not, and what would be a better time? And there’s nothing wrong with asking an agent directly why they are the best person for the job. If they can’t answer that question, it’s a big red flag!

GEEK (Kevin)

As a numbers guy, it’s important for me to know about valuation and pricing. How will the agent get you top dollar without scaring off potential buyers? How do they plan to handle a bidding war? Can they guarantee none of the buyers will walk away before you get the offer you want? And what will the agent do to mitigate your risk by avoiding contingencies in the contract? A successful sale requires attention to detail, and your agent should reflect that.

Chic vs. Geek: Non-Contingent Offers

Contingent offers have been on the rise of late, indicating an increase of buyer power. But sellers still have the leverage to accept non-contingent offers. So what do buyers and sellers need to know?

CHIC (PEARL)

First and foremost with a non-contingent offer, a buyer may risk losing their deposit or paying other damages if they decide not to purchase after the offer is accepted. The buyer also loses their right to an inspection contingency, which could uncover issues that need correcting but become the buyer’s problem. The good news is that even with non-contingent offers, buyers have the right to cancel an offer if the seller does not provide a Transfer Disclosure Statement (TDS) beforehand or the TDS is updated or modified during the transaction.

GEEK (KEVIN)

It may be tempting for a seller to accept a non-contingent offer in order to have a quick turnaround, but there are plenty of snags that can get in the way. For example, it’s wise to verify if the buyer has the funds to make the down payment or buy the property outright. There’s no guarantee the buyer can get a loan or that an all-cash buyer can come through. And buyers who feel powerless in the purchase process are more likely to file claims and disputes that could hold up a sale for months, or worse, force you to take the property off the market entirely.

Chic vs. Geek: Title Insurance

Buying a home can be a risky endeavor, and that’s before you close the deal! Can investing in title insurance help you avoid a sticky situation? Let’s take a look…

CHIC (PEARL)

You may find after you purchase the property that someone else has a claim to all or a share of the title. Or perhaps you learn that a neighbor or your HOA have an easement that allows them to use your land — and limit your use of it! Title insurance can safeguard you against these surprises and give you some peace of mind that you’re the sole proprietor of the property.

GEEK (KEVIN)

One of the more common stumbling blocks with taking over the title on a home is finding out that the property is not up to code or has unpermitted improvements. Sorting this out could cost you time and money and headaches dealing with the assessor’s office and your local tax collector. So don’t cut corners on your home purchase. Invest in title insurance!