Mistake 10. Not Protecting Yourself When You Make an Offer

Many homebuyers, in the excitement of finding their dream home and writing up an offer, forget to add contingencies that will protect them. A contingency is a clause that is added to an offer to make it subject to a certain event. Common contingencies are financing approval, house inspection, closing on a certain date, and replacing a roof. It’s true that some contingencies will weaken your offer, such as selling your house first or adding a list of repairs. But there are others that you need to add to protect yourself.
For instance, one buyer’s agent insisted on putting in a ‘‘subject to final loan approval contingency’’ in her client’s offer, even though he was approved for a mortgage. Unfortunately, two days before closing, the buyer was laid off his job due to downsizing, eliminating any chance of final loan approval. His agent saved him from losing a $1,000 deposit.
The most critical clauses you should consider adding are:
Always make your offer subject to a professional inspection. If you find problems, then you have some leverage to fix them or walk away and get your deposit back.
Making your offer subject to final loan approval will protect you from something unforeseen. For instance, should you get laid off during the loan process, you’ll lose the chance to buy the house but not your deposit.
If you’ve made an offer on a new home and your old home hasn’t closed yet, add a clause making it subject to closing the old house and funding.
You want the offer subject to the home appraising for at least the sales price. If the appraisal comes in low, you’ll have the option of negotiating the lower price or walking away. Along with final loan approval, inspection contingencies are the most important protection for a homebuyer. In one particular case, a home inspector found a cracked combustion chamber in the gas furnace. This can allow carbon monoxide to escape into the house with lethal consequences. The sellers quickly had the furnace replaced and the deal closed. Luckily, a potentially serious accident was avoided. In another case, an inspector found problems with the wiring. It was not only old, but the owner had tried to cut costs and do some rewiring himself. The wiring was not only not up to code but was dangerous, with illegal splices and unconnected hot wires in the attic. In this case the buyers simply negated the offer and got their deposit back because it was subject to a satisfactory inspection.