Unequivocally, a home purchase is one of the greatest, largest transactions that any individual can endeavor to undertake in his or her lifetime. For our first-time home buyers, it is daunting to enter into a transaction, saying, “I will pay $800,000.00 for this home, and here, in the meantime, you can hold an $80,000.00 deposit while we wait for the closing to come to be!” Naturally, one of the most frequently asked questions we get from home buyers is, “How can I protect my offer and thus, my very large deposit?” Here are three of the contingency clauses that can protect your offer in a New Jersey transaction:
- The Mortgage Contingency: a mortgage contingency communicates to the Seller that the Buyer cannot purchase this property without securing funding from a lender. Typically, a mortgage contingency period lasts for 30 to 45 days from the conclusion of attorney review to the date upon which a mortgage commitment is issued by the lender to the Buyer. Even if the Buyer has a pre-approval from the lender, the Buyer still needs that final approval by way of a commitment in order to satisfy this contingency. Simplistically, if the Buyer engages in good faith efforts to secure the mortgage, but the lender still does not issue a commitment, the Buyer is entitled to cancel the contract and have the deposit monies refunded without penalty.
- The Appraisal Contingency: an appraisal contingency communicates to the Seller that the Buyer cannot purchase this property without the property appraising for, at least, the purchase price. Typically, the appraisal is independently conducted by the Buyer’s lender within 20 days from the conclusion of attorney review as a precursor to the mortgage commitment. This contingency allows for the Buyer to cancel the contract and have the deposit monies refunded to the Buyer without penalty if the appraisal does not come back at the purchase price.
- The Inspection Contingency: an inspection contingency communicates to the Seller that the Buyer cannot purchase this property without the property being inspected and carves out certain material defects in the home as “dealbreakers.” Implicit in the Contract of Sale is the Seller’s right to sell the property “as is, and therefore, the Seller does not have to agree to address any of the items revealed in the inspection report. However, the contingency affords the Buyer the opportunity to see if the Seller will address certain defects that are provided for in this contingency, and in the event the Seller does not agree to address the same, the Buyer can cancel the contract and receive a refund of the deposit monies.
When preparing an offer to present to a Seller, it is crucial that the Buyer communicate its needs and limitations to his/her real estate agent and Buyer’s attorney to ensure that the Buyer’s offer – and the deposit monies – are properly protected.
Disclaimer: The information contained in this post is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls and communications. Contacting us, however, does not create an attorney-client relationship.