Dear Monty: We are going to buy our first home this year. We are investigating using an agent or buying directly from a for-sale-by-owner (FSBO).
Some friends have used agents, while others have not. We want more information on the contingencies we may require.
Do you have a checklist of contingencies to use in purchase offers?
Monty: Most home sales require contingencies. Do not buy these services until you have a purchase contract. Sellers know this because they needed contingencies when they bought the house.
There are standard forms to use, but also circumstances where no common form exists. Whether you buy an FSBO or from an agent, click here for a Dear Monty column with guidance on how to write a contingency.
There are many potential contingencies. The 10 common contingencies with the most important concerns are listed below.
Contingency List
- Financing. The cost for this process varies from state to state but expect to spend ½% to 1% of the loan amount. Click here for what you will need to apply for a mortgage.
- Home inspection. There are pre-offer and post-offer inspections. In a pre-offer inspection, the seller can disclose or correct defects up-front. The buyer understands the condition before they offer. Click here for an explanation of the additional value of the pre-offer home inspection.
- Appraisal. An unexpected shortfall may discourage or upset both parties. An additional down payment for the buyer? A price concession by the seller? A lender canceling the loan commitment? Appraisals are a pain point now more than ever, with home prices dropping in many markets. Click here for an article to help you prepare if you receive a low appraisal.
- Post-closing occupancy. The buyer and seller should make an occupancy plan when negotiating the offer terms. Most buyers and sellers should have a short-term post-closing occupancy agreement to prevent occupancy hiccups. Click here to learn more.
- No flood plain. A bit of research can identify the existence of a flood plain. The Federal Emergency Management Agency estimates that 15 million homes are affected. Be sure to know the risks involved as a buyer and a seller. Click here to check your house out.
- Home sale. Our experience is that a buyer with a home to sell first can be successful by following a plan with three components: a pre-approval letter, a seller “bump clause” and pricing your old home realistically. Click here for an explanation of solutions.
Additional Contingencies
- Well and septic inspection. Rural properties have private septic systems. Click here for a well and septic link with helpful insights that buyers and sellers should know.
- Survey. It is wise to verify the location of your lot lines. Walk the boundaries with the seller as they may have a survey or can walk to the stakes. Click here for an article about land surveys.
- Water test. Lead piping is a health hazard, especially for young children. A water test is necessary to determine if lead, arsenic or other chemicals are present. Include this test with municipal water. Both parties will be better off investigating.