Ok, you’ve done your homework, run the numbers, and are ready to submit an offer on that perfect home. Unfortunately, in a hot market, you may not be the only bidder, and therefore you should take nothing for granted in the terms you set forth. Note that price isn’t always the bottom line in real estate.
Earnest Money Deposit: A deposit or “good faith money” is typically a personal check submitted with an offer, deposited into an escrow account upon acceptance, and returned to the purchaser at settlement as part of funds to close. The deposit is thought of as insurance for the seller that can be forfeited if the buyer doesn’t perform. In a hot market, if your loan is solid, and contingencies are few, the larger your deposit check is, the more you’ll stand out. It’s called “good faith” for a reason. Give the seller some faith in you.
Financing Contingency: This insures the return of your EMD in the event of loan denial. There are ways to remove or make this contingency more attractive to a seller. First, buyers, please don’t walk into your local bank branch or credit union and ask at the window for an application. There are many mortgage lenders, brokers and banks who deal strictly with home loans. They can often take a broader view of your financial landscape, and are often able to provide a more comprehensive approval letter, helping to make your bid a better bet.
Appraisal Contingency: If the house doesn’t appraise, the seller won’t reduce the price accordingly and you’re not willing to throw more cash at the deal, then your EMD is returned. If you’ve done your homework and your agent is experienced, you should know what the home would likely appraise for, what premium you might pay and what risk you are willing to take with this contingency. A local, experienced mortgage broker can help a lot.
Inspection Contingency: This implicitly keeps your EMD safe in the event of defects discovered during inspection that the seller isn’t willing to remedy. But remember, we’re talking about a competitive market; if you feel you’ve got a decent chance of getting the home, have an inspector go in prior to making your offer, include an as-is clause and increase the seller’s faith in you and your offer. In my mind, $300 is a small price to pay to secure such a big-ticket item.
Settlement Date: Contractually speaking, this date is firm absent written consent to change by both parties, but there is wording that can allow a seller flexibility in their move. If a seller requires some time post-settlement in order to move, make the available to them. If a small amount of time is needed, allow it at no charge provided that a deposit is retained. Again, it’s small money in light of the big picture.
There’s no mention of price here, as I’ve found that if handled properly removal or modification of your contract contingencies and components can often put you on top, even at a lower contract price, and can often be done relatively risk-free.
These contingencies can be turned on their heads in a buyer’s market. Stay tuned.
The views and opinions expressed in the column are those of the author and do not necessarily reflect the views of HillNow.com.