Check the Fine Print When Buying a Home

buying contingencies

Once you’ve finished buying a home, you’ll typically have a two-inch stack of papers with copies of your signature all over them, and you might wonder if you’ve missed anything important. Reading the fine print seems impossible when you’ve been handed contract after contract, so here are some of the most important details you should pay attention to in the homebuying process. 

Buyer’s Agency Agreement

Your Realtor® may ask you to sign a buyer’s agency agreement to exclusively represent you. You can negotiate their commission before signing this agreement, but there are a few other details you should also pay attention to. If you get along with your agent, you may not be concerned about an end date to your contract, but if you find that you’re not a good fit, you’ll want to know how soon you can get a new agent. 

In the buyer’s agency agreement, read the fine print to see if the brokerage can assign you a new agent if you don’t mesh well with your current agent. You should also be aware of any consequences of breaking your contract. 

Bank Disclosure Documents

When you take out the biggest loan of your life, you can expect a huge stack of papers to detail how you’ll pay that loan back. Focus on the most important details in your bank disclosure documents: 

  • Your interest rate
  • The terms of your loan
  • The amount of your mortgage
  • When the payments are due
  • Where the payments should be sent
  • Loan conditions that may change

Seller’s Disclosure Documents

How much a seller is required to tell you about the condition of their home varies by state, but generally, they must disclose if the home has lead-based paint. They may also disclose known issues the home might have such as structural problems, renovations, liens, or pests. The keyword is “known”. If a seller doesn’t know about an issue, they aren’t legally responsible for any future problems that might crop up as a result. You should read the seller’s disclosure documents carefully so you’re not surprised by future problems. 

Title Insurance 

The title company transfers the property rights from the seller to the buyer, and it investigates the property to be sure that no one else has a claim against it. You’ll purchase title insurance through the title company that protects you from any disputes related to previous owners. Read the fine print to determine the legality of your purchase, and what the title company will do in the case of disputes.

Common Real Estate Contingency Agreements

Contingencies are written into real estate contracts to protect the buyer. Think of them as conditions or checkpoints that have to be met before the rest of the sale can go through. These are some of the most common real estate contingencies, and you might use one or more of them when you make an offer on a home:

  1. Appraisal Contingency: Banks will not loan more than what the appraisal says the home is worth, so including an appraisal contingency gives you a chance to renegotiate the home price if it’s valued for less than what you offered.
  2. Inspection Contingency: Hinging a purchase agreement on the inspection report protects you from unseen problems in the home such as foundation issues, termites, or hidden mold colonies. If an inspection report is unsatisfactory, the inspection contingency gives you a chance to negotiate or cancel your offer.
  3. Home Sale Contingency: This contingency clause might be home sellers’ least favorite since it holds up the sale of their home until you sell your current home. However, if you don’t want to be stretched between two mortgages, this contingency clause can safeguard your finances.
  4. Financing Contingency: If you’re relying on a mortgage to purchase your home, you’ll want to include the financing contingency to give yourself an opportunity to back out of the purchase if the bank financing falls through.

Don’t Lose Your Earnest Money

Think of earnest money as a refundable deposit. Without contingencies, if you miss deadlines or break the contract, you risk losing your earnest money, which can be between 1-10% of the purchase price. Keep an eye on the time limit for getting the bank loan, completing the home inspection, and signing the final papers at the title company.

The Bottom Line

If there’s one thing to emphasize about the fine print when buying a home, it’s the importance of time frames and deadlines in a contractual world. Pay attention to due dates, and you won’t be surprised by a purchase agreement falling through.

The sheer number of legal documents that you have to wade through to purchase a home can be overwhelming. Hiring a rockstar Realtor® who can guide you through the home buying process can make your homeownership journey significantly easier. 

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