Many people would do just about anything to own their own home, including living with their family for years or working two jobs to save up a down payment. Unfortunately, prospective home buyers are often so eager about the transition to homeownership that they completely fail to protect themselves during what is truly a financially risky process.
Things can go wrong at any point between when you first make an offer and when you finally sign the paperwork. If you don’t properly protect yourself when submitting an offer, the earnest money that you deposit when making the offer could be at risk. You could also find yourself in a situation where you are making mortgage payments on a property that you have not yet been able to move into and start using.
How do you protect yourself when making an offer on a residential property?
Include appropriate contingencies
A purchase offer for real estate is a lengthy document that includes numerous specific terms. You have to consider not just the maximum amount that you would pay for the property but the circumstances in which you would not want to pay that amount.
For example, inspection contingencies are some of the most common. If the professional inspection turns up serious issues with the property, an inspection contingency would allow the buyer to cancel the closing or negotiate a different price.
There are also financing contingencies in case the buyer loses their job and can’t get a mortgage and appraisal contingencies that protect a buyer from making an offer that is over what the lender will finance. The condition of the property and your intended use for it, as well as how much you intend to offer and how you will fund the transaction will all influence the right contingencies to include in your offer.
Proposed terms for assuming possession
Even if you don’t have a specific timeline for when you want to move, it is crucial that you address when you expect to take possession of the property in your offer or while negotiating your contract with the seller. They should be ready to hand over the property to you by your possession date.
If they fail to do so, you might have to evict them before you can take possession. If your offer includes a specific possession date or a specific amount of time for the seller to move out after closing, you can also include a penalty fee for every day the seller stays past that point. Assessing more than it would cost to stay at a hotel per day will motivate a seller to leave even if they don’t yet have a different permanent housing arrangement.
There are many other concerns that you may need to address when submitting your offer or negotiating your agreement with the seller. Learning more about the risks involved in real estate transactions will help you more effectively protect yourself and the money you intend to use to buy the home.