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How contingencies can protect purchasers of New York real estate

On Behalf of | Apr 23, 2023 | Real Estate

Buying a home isn’t just a dream and a life goal. For many people, it is also a form of investment. Instead of spending money to pay for rental housing every month, they pay a mortgage that slowly leads to the development of home equity. Over multiple decades, people pay off their property while also increasing its value by updating and improving it.

Buying a home is often a complex process. People have to do a lot of research to find properties that fit their needs and then they have to make offers and negotiate with people who are selling their homes. In addition to setting a price, an offer for real property will suggest other terms, including when the buyer will take possession and the circumstances under which a closing may not occur. Adding contingencies to an offer is key to the protection of a buyer in case they don’t end up following through with their offer.

Someone’s earnest money is at risk

When making an offer, one of the ways a buyer convinces a seller to consider them seriously is by offering earnest money. Earnest money ranges from 1% of the purchase price to the full down payment in some cases. The money serves as a deposit and a representation of a buyer’s sincere intention to follow through with the transaction.

If they cancel the closing after the seller accepts their offer, then their earnest money could be at risk of retention by the seller. Contingencies effectively allow someone to cancel a closing for specific reasons without putting their earnest money at risk. Common contingencies include:

  • financing/mortgage contingencies
  • title contingencies
  • appraisal contingencies
  • inspection contingencies
  • home sale contingencies
  • insurance contingencies

When there’s undisclosed damage to the property, issues securing a mortgage or problems with the buyers selling their current home, they may be able to use their contingencies to cancel the closing without putting their earnest money at risk.

Custom documents offer the best protection

Real estate transactions are relatively risky, and buyers have thousands of dollars (minimum) on the line when they make an offer. Using boilerplate documents could be a mistake that ends up complicating a transaction. Putting together custom offers and purchase agreements can help to protect prospective home buyers from the risks involved in real estate transactions.