Los Gatos Home
California Association of Realtors has developed legally binding contracts that are used in majority of real estate transactions. Also known as “CAR Contract” the purchase agreement often contains conditions on inspections, financing, condition, inspections, warranty and more. These conditions are called “contingencies.” These contingencies offer both buyer and seller option to cancel the purchase if the other party does not meet the conditions outlined.
For example as a buyer you might want to place a financing term about you ability to secure a mortgage loan with a certain interest rate. So, if you are unable to secure this interest rate, you would have the option to cancel the purchase agreement without any risk to your deposit.
However, since most contingencies add delays and uncertainty to the success of your purchase, most sellers don’t like to deal with offers which have too many of them. So it’s worth investigating whether you’re doing the right thing and creating contingencies allowing you to make these investigations before the purchase is finalized.
As a practical matter, you’ll be doing most of this on paper, within your written the contract will build in a certain amount of time (usually several weeks) between the contract signing and final “closing” of the deal. (In some states, this period is called “escrow.”) During this time period, you and the seller will be working hard to meet or remove the various contingencies, for example, by securing a loan and scheduling inspections, and will advise the other party of progress being made. If either of you fails to meet or remove a contingency, you can either call off the purchase or renegotiate around the issue.
Some contingencies are quite standard, and both you and the seller would probably be foolish to reject them. For example, a buyer’s inspection contingency is quite common and is required by California law. In fact, as a buyer you are required to sign a disclosure form that you have been advised by your Real Estate agent that you have the right to inspect the home you are interested in buying prior to close of escrow.
A financing contingency is also common, making the sale contingent upon you, the buyer, securing a loan with a certain interest rate. This has become a bigger deal in the recent recession since getting loans are much harder these days.
As a result, sellers now favor buyers who can buy all-cash and leave out the financing contingency. But in the hyper competitive market of Silicon Valley even writing cash offers to close in 7 days is not enough as we experience ourselves on a recent Los Gatos home which sold for $140,000 over the asking price and closed in 3 days.
Now, would you risk your offer by adding a financing contingency in this kind of market?