Tuesday, April 26, 2016

Buying a Home in Florida: What is a contingency?

Most real estate offers to purchase in Florida are prepared with one or more contingencies.  Contingencies serve to protect the buyer. 

What are contingencies?  In its simplest term contingency just means conditional based on something else.   I am not an attorney so this is not intended as legal advice but rather practical home buying advice from a Florida real estate broker.

Contingencies serve to protect a customer's interest.  But these protections are usually limited by time periods.  The Florida real estate offer commonly used contains a very bold sentence:  "Time is of the essence."

Most purchase offers have a couple of standard contingencies which are quite often expected by the seller's agent. 

The first of these is the inspection contingency.  Here in Brevard County, Florida the standard offer basically contains an inspection contingency which allows the buyer to have inspections (property, termite, septic, pool, mold, radon, etc.)  performed within a defined number of days.

By the way, even if the house is being sold "as is," buyers should not fail to perform the inspection.

My experience is the buyer usually has 10 (maybe up to 15) days for the inspections.  Because inspections cost the buyer money they are usually performed in a specific order (property first, then septic, for example).  If the property inspection reveals a showstopper then why waste the septic inspection money?

I think of the inspection contingency as a get out of jail free card as there is no pass or fail and the interpretation of the results is solely up to the buyer.  Of course, some sellers wonder if the inspection contingency lets a buyer walk too fast!

Another key contingency is the financing contingency/appraisal contingency.   If  the purchase is being financed then the appraisal is key.  Even if the purchase is a cash offer most buyers still want an appraised value at least equal to the purchase price.

What happens if the appraisal comes in low?  If the appraised amount is under the contract price then there are options available including: 

  • Cancel.  Most buyers really do not want to exercise this option.
  • Negotiate a new price.  This will depend on the seller's desire to close the current contract.
  • Request a second appraisal.  This is an added cost to the buyer ($400-$500 estimate) but if it saves the deal and money it may be a consideration.
  • Bring cash to the closing table.  If all other options fail the buyer can choose to add cash to make up the appraisal shortfall.
Regardless of solution, financing and appraisal contingencies protect the buyer.

There are other conditions which may show up in an offer but they are less common. In a seller's market such as the April 2016 residential market in Florida it is likely sellers will not look favorably on these "non-essential" contingencies. 

After all, a contingency that may be viewed as protecting a buyer can be also seen as putting the seller at a disadvantage!

Professional real estate agents know which contingencies  serve to protect and which ones are just annoyances or fluff. 

Appraisals - The Final Hurdle
After Your Offer is Accepted.
Buying a Home in Florida - A Language of Its Own.
Twelve Rules For Buying a Home in Florida.
Multiple Offers, Appraisals and Financing
What Does "As Is" Really Mean?

Ready to buy a house in Viera, Florida?  call or text me at 321-693-3850.

Ready to sell your Viera home, call me!