Contingencies

When you write an offer on a home one of the things you do to protect yourself is to include contingencies that contractually allow you to do certain things inside the contract. Essentially these contingencies allow you to inspect the home to your satisfaction and to get a loan within a time frame. Ultimately, the contingencies are there to protect your deposit and to allow you to back out should you encounter a major problem.

In the case of inspection contingencies, they allow you to do inital or further inspections of the property that may include hiring contrators or other professionals who can help you determine what the  home presents. The contingency also gives you time to research the property’s existing disclosures and to find more if you want to…a permit check with the city comes to mind. At the end of your investigation you either create an addendum asking for a remedy to whatever you’ve found (renegotiation) or you discover you’re satisfied with the home and you remove the contingency from the contract in writing and move forward.

In the case of the loan contingency, you’ll need to have had your appraisal completed and the lender to have told you that your loan is done and in place. That’s typically when loan contingencies come off. Recently, and after hundreds of escrows, I learned something new. What routinely happens in this case is the lender sends either the rep or the mortgage broker a list of conditions…a conditional loan approval if you will, and when the rep or mortgage broker sees it he or she knows from experience that these conditions can be easily met and they give the go ahead to remove the contingency. The conditions, once acquired, are sent back to the lender who them reviews them and sends the rep or mortgage broker a commitment in return acknowledging the satisfied conditions. Again, business as usual has been, in my experience, that once the conditions are sent out it’s sort of taken on faith that they will get satisfied based upon the experience of the mortgage broker or rep and this verbal is given to remove this contingency. I have a very smart client who asked a simple question…”How do we know that the lender is OK with the conditions we sent back?” “Shouldn’t we wait to remove the contingency until we know for sure they’re satisfied?”

That’s a pretty interesting question! In fact, it really is on faith and past experience that this contingecy get’s removed. Not upon written proof that it’s etched in stone. Sellers and their agents are naturally anxious about feeling certain the loan is done so that they can complete their plans to move…etc. They want the loan contingency removed as soon as possible. Heck, for years it was common to not even have a loan contingency at all. You just risked it right from the start! I guess things have changed. It actually seems reasonable to me that a buyer in this market be comfortable removing their contingency based upon the lenders acknowledgement of their commitment. Real estate is an ever changing and evolving business.

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