Buyers today are forced to make quick decisions, offer more than the list price and are often asked to waive or amend some of the normal contractual protections.
In many cases, buyers are even waiving their rights to inspect the home, while some proactive sellers are paying for inspections in advance of marketing their homes so buyers can make faster decisions.
Along with this hurried decision making, buyers are faced with the uncertainty of an accepted offer and many are having second thoughts about their fast and expensive decision. More than ever, I am asked, “Can I get out of this contract if I change my mind?”
In the past when the market was more balanced between the number of buyers and the number of homes available, buyers could take their time, view more homes and even think about things before making an offer. Today, there aren’t enough homes on the market and waiting often results in disappointment. A lot of buyers took themselves off the market only to watch the market increase 15 to 20 percent while they sat on the sideline.
The simple answer to their question is NO. Most real estate offices use pre-printed contracts provided through the California Association of Realtors. The contract provides for three basic contingencies which, if not satisfied, allows the buyer to cancel the contract. The contingencies are obtaining a loan, the home appraising for purchase price and the condition of the home. Mood changes or second thoughts are not contingencies of the contract. Let’s look at each one.
Loan: If your realtor completes the contract correctly, there are places to indicate the loan amount, the interest rate, type of loan (VA, FHA, Conventional) and the amount of points you will pay. If your lender finalizes your loan at or below the amounts indicated on your contract, then that contingency has been met.
Appraisal: The bank will order an appraisal from a certified, licensed appraiser. The appraiser will inspect and measure the home, and then compare the home against current sales in the neighborhood. He/she will make adjustments to account for variances in home size, lot size, amenities, condition, etc. in order to establish the value. If that valuation is at or above the contracted amount, then that contingency has been met.
Condition: Most Realtors will recommend you order two inspections. The first being a termite inspection and the second is the home inspection. There are other inspections that can be ordered on a case-by-case basis or if something is indicated in the first two that causes concern. This might include a roof, foundation, pool, soil, mold, septic, well or zoning. I caution buyers that the reason we order inspections is to make sure they are making a fully informed decision. Inspections are not intended to use as a renegotiation ploy. Presuming the inspections confirm that you are buying what you thought you were, this last contingency has also been met. The condition of a home is subjective and varies with every buyer. I recently sold a home in Willow Glen that had an unpermitted guest house and a bad foundation. The buyer was planning on scrapping everything and building a new home, so those issues didn’t matter. Had the buyer planned on living in the home, the issues would have been significant, so the intent of the buyer makes the condition another case-by-case issue. Obviously if something is discovered that concerns the buyer, repair estimates should be obtained and discussions should be initiated between the parties, which could lead to concessions or cancellation.
In any event, once the three contingencies have been satisfied, you are committed to the contract and everything should proceed to closing. Should you cancel the contract at this point, the seller can keep your deposit under the liquidated damages clause of the contract.
The best advice I can offer is to be fully prepared before starting the home search. Have your loan pre-approved, understand your financial situation, be realistic about what you can afford and what you are able to repair in the home. Think about your housing needs and which things are required and which are optional. Find the best Realtor you can—someone who cares more about your long-term satisfaction than simply closing a deal.
