The inspection period is a window of time for buyers to inspect every aspect of the home to confirm that it matches their expectations the home. Our team advises buyers to hire professionals to perform necessary inspections. This is also a great time for buyers to do their own research by talking to neighbors and researching the zoning of the property and any future plans.
Related Reading: Doing the research: due diligence
What are contingencies when you purchase a home?
Contingencies are requirements that the seller or the home have to pass or meet. They give the buyer (and sometimes the seller) the right to back out of the contract without losing their earnest money if requirements are not fulfilled.
What are the most common contingencies? (Colorado Contract)
As a buyer or seller, you can agree to any kind of specialized contingency. The most common contingencies are:
You have the right to inspect the home and the land it is on. Your requirements will be submitted in the Inspection Objection. If the seller is not willing to fix those requirements or you can’t agree on the repairs in the Inspection Resolution, then you have the option to terminate the contract and get your earnest money back. Please note: you must observe and adhere to the deadlines determined in the contract.
The lender wants to make sure that you are paying fair market value for the home. They will not underwrite a loan that is higher than the value established by an appraisal. The appraiser’s price opinion may be different than the contract price. It’s great news if the appraisal comes in higher than the purchase price because you will have automatic equity. If the appraisal comes in lower than the contract price, the buyer and seller will have to negotiate on how to move forward. Will the seller accept the appraisal value as the new sale price? Will you and the seller come to an agreement somewhere in between? Or will everyone walk away?
Applies: if a lender is involved or at buyer’s discretion during a cash purchase. There will not be a deadline specified with government loans (USDA, FHA, VA).
A Loan Objection contingency will allow you to terminate the contract if you are not be able to get a loan approved. This can happen if your financial situation changes during the contract period (for example: an unexpected debt like a furniture purchase prior to closing or a job change). You may terminate the contract on or before the loan objection deadline. Keep in mind that by that point you have lost valuable time AND money on inspections and the appraisal. You will get your earnest money back if you stay on top of your deadlines.
Applies: only if a lender is involved.
Home Needs to Sell First
Some home buyers want to secure a new home before they are selling their current home. Often times, the buyer needs the equity in the current home to finance the new home. Therefore, a buyer will make the purchase of the home conditional upon the sale of the old home. As a buyer’s agent I will want to have that deadline as late as possible in the contract, but a smart seller’s agent will not allow for a date too close to closing. If you do not have your home closed on by the contingency date, you will not get your earnest money back should you have to terminate your contract beyond the deadline assigned to this contingency.
Applies: If the funds of an existing home are needed.
Due Diligence Documents
Due diligence documents are any documents pertaining to the home you are purchasing such as:
- utility bills and property tax statements relating to the Property for the last 12 months
- architectural drawings, blueprints, as-built construction plans and any other plans or specifications regarding any improvements on or to the Property
- certificate(s) of occupancy or other governmental approval(s) regarding any improvements on or to the Property
- warranties, manuals, instructional brochures or similar materials relating to the Property or Inclusions, or their use, operation or maintenance
- inspection, soil, drainage, percolation and similar reports relating to the Property
- and if a well exists on the Property, a CREC-approved Listing Firm’s Well Checklist completed by Seller, current as of the date of the Contract.
In general, sellers do not provide many items beyond simple instruction manuals. If they do, please review these documents in detail and ask any questions.
Applies: always – if a deadline in the contract is specified
Any time you see the word “Objection” in the contract deadlines, you have the right to raise any concerns on or before a specified deadline. If these objections are not resolved (via “Resolution” from the seller) to the buyer’s satisfaction, the buyer has the right to terminate the contract in timely manner.
If you have questions about the home buying process, our team is here for you. Call 719-321-0800 or email email@example.com.