In any real estate deal, there will almost always be contingencies written into the contract to address issues that may arise. These contingencies will allow one or both parties to end the deal before closing, if certain conditions are not met by a certain time. Here are five important contingencies you should consider putting in your real estate contract:
- Inspection of the premises
- One of the most common contingencies seen in real estate contracts is the requirement for the property to be inspected before the sale is completed. These inspections are meant to reveal potential property defects, such as the presence of mold or pests, structural damage, or potential code violations. This gives both sides the chance to repair any issues that are found, or to back out from the deal entirely.
- Pre-approval for financing
- It is also fairly common for sellers to require any prospective buyer to obtain pre-approval for financing on a mortgage. This has two purposes: first, it helps weed out potential buyers who cannot afford to buy the property by forcing them through a mortgage lender’s approval process. Second, it reduces the risk of fraud, since a buyer must show documentation from a lender to prove they have been approved for a mortgage.
- Appraisal of property
- By contrast, buyers will typically require sellers to have a property appraised at some point during the transaction. This appraisal is meant to determine what the actual market value of the property is, compared to whatever value the seller was hoping to obtain. If the appraisal value is unfavorable, or the seller refuses to have the property appraised, it can give the buyer a chance to avoid closing on what may be a bad deal.
- Title search
- It is also common for a title search to be performed as one of the contingencies to real estate deals. This helps to identify potential title defects that may result in legal or financial issues later on, such as undisclosed easements or covenants, unpaid mortgages or liens, or anything else that might impair the real estate transaction. You may also need a survey of the property to identify so-called “metes and bounds” issues, such a portion of the property being out of possession. Failing to identify these issues before closing could leave a buyer wrestling with problems for years afterwards.
- Homeowners insurance
- Real estate contracts will often have contingencies requiring a buyer to obtain homeowners insurance for the property before the deal goes through. This helps to cover for the risk of damage done to the property from natural disasters or other unpredictable problems that may occur during negotiation. That way, a buyer will not enter the home needing to wrestle with the costs of cleaning up from damage related to a fire, flood, burglary, or other disasters.
At David J. Lorber & Associates, PLLC, we assist clients throughout New York who are looking to buy or sell real estate. We will guide you through the process and help you minimize your legal and financial risks. Call us at (631) 750-0900 or contact us online to schedule your Free consultation at our Setauket office.
Recent Comments