This week’s Q&A column is sponsored and written by Hope Peele of The Peele Group and McEnearney Associates Realtors®, the leading real estate firm in Alexandria. To learn more about this article and relevant Alexandria market news, contact The Peele Group at 703-244-5852 or email [email protected]. You may also submit your questions to McEnearney Associates via email for response in future columns.
Question: What does a contingency period mean?
Answer: Like any industry, real estate has a ton of lingo that isn’t common to most people. To me, it’s incredibly important that someone who is buying or selling a home has all of the information and resources that they need — before the stakes get high! There is nothing worse than trying to make a difficult decision when you are unfamiliar with the terms.
When I am working with both buyers and sellers, some of the most frequently asked questions are about contingency periods. These are lengths of time written into the contract in which one of the parties has the option of voiding the contract without penalty.
There are many different types of contingencies, and they can vary greatly depending on the contract. No two contingency periods are alike! However, there are some that are more common than others, so here is a quick guide to the top three contingencies that I am asked about most often.
1. Inspection Contingency
In some home sale contracts, there is an agreed-upon number of days in which the buyer can hire a licensed inspector to examine the home for defects. Sometimes the contract allows for the buyer to void during this contingency period, and sometimes there is also the option to negotiate repairs with the seller. If the buyer chooses to either void or negotiate, they must provide the seller with a report from a licensed inspector. In a hot “seller’s market,” buyers can sometimes make this period very short, or even waive it entirely, to appeal to the seller.
2. Financing Contingency
This contingency protects the buyer in case something happens to their loan. Changes in things like a buyer’s employment or credit could potentially put the loan in jeopardy. If there is any risk of this happening, it is important to have this contingency in place so the buyer is not bound by the contract terms. Depending on where the buyer’s loan is in the lender’s pre-approval process, this contingency can be confidently waived in some instances.
3. Appraisal Contingency
An appraisal contingency gives buyers security in case the appraisal from the bank does not come in at the contract price. The bank wants to know that the loan they are approving is worth it. So, if they conduct an appraisal that values the property less than the contract price, the buyer either needs to make up the difference or come to an agreement with the seller. Without an appraisal contingency, the buyer is responsible for what they agreed to in the contract — with or without a loan. An appraisal contingency protects the buyer in case the bank will not allow the loan to go as high as the contract price.
This is by no means an exhaustive list and please remember contingencies can vary greatly from one offer to another. Each buyer and seller should work closely with their Realtor to decide what is best for them in each particular situation.
To learn more about contingencies and other real estate topics, we will be hosting a Virtual Happy Hour on April 22. We will be joined by a lender and a home inspector, and we will answer all of your questions about real estate! For an invitation, please send an email to [email protected].
Hope Peele is a licensed real estate agent with McEnearney Associates, Inc. She and her mother, Kim Peele, are The Peele Group serving Virginia and D.C. They are dedicated to helping clients through the challenges of buying or selling a home.
If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: [email protected] or call 703-549-9292.
McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. www.McEnearney.com Equal Housing Opportunity. #WeAreAlexandria
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If you have been thinking about buying your first home or haven’t owned one in the last three years, THIS IS FOR YOU!
In the DMV area, it can be difficult to save the downpayment necessary for you to get into your own home. We have a solution. The Funder’s Summit!
We have assembled a summit with different municipalities to tell you how to access their funds for your home purchase.
Mark your calendars and join us for the Family Fun Fall Fest on Saturday, October 7, 2023, from 11am – 2pm!
This FREE in-person event will be held at the Shoppes at Foxchase, located at 4641 Duke St, Alexandria, VA