Buying A Home...?


Can I back out of a home purchase if I change my mind?

It’s a scary moment when you put pen to the home purchase contract to sign your name. We’re talking a lot of money here – maybe the most you’ll ever pay for anything.

We know you’re too savvy to sign anything without reading and understanding it. But there are particular areas of the contract you’ll want to scrutinize. These are called “contingencies,” and they are your get-out-of-the-deal-free cards.

Con-tingen-whats?

When the seller agrees to your offer to purchase the home, he or she will expect a deposit of your earnest money. The amount of this deposit varies according to region. In some areas of the country the seller expects one percent of the offered price while in others you may be asked to put down as much as three percent.

This so-called “skin in the game” is meant to show the seller that your are earnest in your desire to buy the home. Because you may have to forfeit this money if you default, it’s also meant to act as an incentive to remain under contract unless there is a good reason to cancel the deal.

The purchase agreement lets the seller know that, yes, you want to purchase the home. But, the purchase is subject to the successful outcome of certain events. These are the contingencies.

Think of them as exit doors, sprinkled throughout the contract, with specific deadlines you’ll need to meet if you want out.

Cancel the deal when contingencies have expired and you may lose that earnest money deposit.

Common real estate contingencies

According to the National Association of Realtors, 33 percent of residential real estate deals fall through because of issues surrounding the home inspection (a typical contingency), 21 percent because of problems with the buyer’s financing (another contingency).

As you look over the purchase agreement before your agent submits it, look for items that require a deadline.

For instance, you will be given a certain amount of time (typically around two weeks) after acceptance of your offer to perform all the inspections of the home that you feel are necessary. You do not have to accept the stated time period and are free to request a longer period.

You must, however, perform these inspections and either approve of the findings, ask the seller to remedy items of concern or cancel the contract before the expiration of the stated time period.

Another common contingency deals with your lender’s appraisal of the value of the property. If you agree to pay $325,000 for a home, for example, and the appraiser’s report claims that it’s only worth $300,000, you can cancel the purchase.

If you really want the home, there are other ways to deal with a low appraisal, however, such as asking the seller to lower the price, coming up with a larger down payment or splitting the difference, with the seller paying half of the shortfall and you paying the other half.

If, after all contingencies have been released, something happens that creates a need to cancel the purchase, you will most likely lose your earnest money deposit.

Consult with your attorney if you have any questions about the legal aspects of a home purchase. Always speak with your agent about any concerns you may have regarding the time periods. He or she is your best source of information and guidance.


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