Buying a new house is an incredibly exciting process, but it is also one that comes with substantial financial and legal risk. When you submit a purchase offer to a seller, you could potentially lose your earnest money if you back out from the sale prior to closing.
Depending on the value of the home involved, that earnest money could be thousands of dollars. Beyond that, without careful planning, you could end up paying far more for a property than it is actually worth. The inclusion of contingencies in your offer on the property will protect you from financial hardship and other issues that could arise during the transaction.
Include a contingency about selling your own house
Real estate markets are nothing if not unpredictable, which is why you should never make the assumption that you can easily sell the property you currently own for the price that you need in order to finance the new purchase.
In cases where you have to sell your existing home in order to finance the new property or where you cannot carry two mortgages simultaneously, including a contingency that necessitates the sale of your home before closing will protect you from the problems that arise if your house doesn’t sell.
Contingencies about the condition of the property protect you from an overpayment
Everybody wants a good bargain when they buy a house, but it’s also important to make your best offer in a market that is competitive with multiple offers on the best properties. Buyers often lead with their best and highest offer, which could mean paying more than the property is worth if an inspection or appraisal turns up significant defects.
You may want to include a contingency in your offer that refers both to the valuation set in the appraisal and any defects located during inspections. Rescinding or reducing your offer based on the condition of the property is appropriate and common.
Make sure there are penalties if the seller doesn’t turn over the property
The date of possession is a common issue of negotiation between sellers and buyers. The seller wants enough time to pack up and secure a new place to live, while the buyer likely wants to get in the property as soon as they have a mortgage for it.
In addition to negotiating a possession date that works for you, you should also consider including financial penalties for a seller who does not vacate the premises by the possession date. Assessing a significant charge per day for each day that the seller stays beyond the possession date can motivate them to move on time and give you recourse if they don’t.