Most contracts have something called contingencies – like a home inspection contingency, financing contingency, appraisal contingency, or HOA document review contingency. These are usually completely negotiable between the seller and you the buyer. Contingency means the written contract you and the seller have signed has some items that are still not 100% agreed upon and finalized – but they are likely to get resolved.
Part of the offer will include putting down a good faith deposit (GFD) and this amount will need to be in the escrow company’s hands within 3 days of contract signing. The GFD is applied to the full purchase price and will be refunded if the buyer backs out of the contract for a valid reason, before removal of all contingencies. If the buyer is found at fault, then this deposit can be forfeited to the seller.
A qualified home inspector will conduct a thorough investigation of the property. Generally the buyer is expected to be present during the inspection, but your agent will also be there. When finished, the inspector will generally provide a verbal report. A full report will be sent later that day or the next, to both the buyer, and per the Purchase Contract, to the seller’s agent also.
If they there is nothing wrong with the home, then the buyer will remove the inspection contingency, which means they can no longer cancel the contract for physical conditions, unless something really unusual surfaces during the escrow period.
The inspector almost always suggests that the buyer conduct additional inspections for things like the chimney, foundation, air-conditioning, plumbing, etc if they cannot determine the condition themselves. In this case, the buyer’s Realtor® will order those inspections as quickly as possible. The seller should be provided with a copy of those inspections also, per the contract.
The next step will be that the buyer may put together a Request for Repairs to submit to the seller. Generally these will be the more costly items, not everything on the list, which the buyer would like paid for by the seller. At this time the clock on the contingency period stops and the ball is in the seller’s court.
The seller may agree to the terms of the Request for Repair, they may negotiate them, or they may refuse them. At this point if the buyer does not want to continue with the process then they may request cancellation of the contract. Once terms are met they will remove the inspection contingency.
If the property is a single family home not part of a homeowners’ association, then pretty much all the buyer has left now is the appraisal and the loan approval. The standard for these is 17 days, although in this market the buyer’s Realtor® might have requested a longer period. The lender will help determine this period.
The appraisal will be conducted by the lender at the buyer’s expense. If the property appraises then there is no problem. If it doesn’t then the buyer has the option to request cancellation of the contract, ask the seller to lower the price, or pay the difference themselves. Without one of these options the buyer is not going to be getting loan approval.
If all goes well and the loan is approved, the buyer will remove the loan and appraisal contingency together. At this point they basically have bought the home.
Until the seller has met his or her contingencies, then the buyer can still request cancellation of the contract even if they have met all theirs.
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