When it comes to upgrading homes, I’ve learned that making real estate offers without contingencies is like having a free call option. Your downside risk is limited to potentially making nothing, while the upside is scoring a home below market value. In the past, I refrained from including contingencies in my offers due to the competitive San Francisco housing market. However, with the market cooling off and more favorable conditions, I’m now considering adding inspection contingencies to my offers.
After your offer is accepted, you’ll need to send an earnest money deposit to an escrow company, typically 1% – 3% of the home’s value, to ensure both parties are protected until all contract conditions are met. It’s crucial to verify wiring instructions directly with the escrow company to avoid falling victim to email scammers.
Contingencies, such as financing and inspection clauses, safeguard your earnest money deposit in case the deal falls through. These contingencies have expiration dates, and once they are lifted, failing to proceed with the purchase puts your deposit at risk. While sellers prefer offers without contingencies, during a slower market, they may have to accommodate them.
Extending the escrow period and negotiating longer contingency durations can provide you with more time to make informed decisions and potentially secure a better deal. By strategically utilizing contingencies, you can create a valuable "free call option" to buy a home at a favorable price without significant upfront risk.
Real estate offer contingencies cover various aspects like loans, appraisals, title reviews, and more, each with default duration days that can be negotiated. Longer contingency durations offer buyers more flexibility and time to assess market conditions before committing to a purchase.
When considering extending escrow or negotiating contingencies, analyzing the probabilities of the home closing and your willingness to proceed with the purchase is essential. By understanding these factors, you can make informed decisions on how to invest your house fund and navigate the buying process effectively.
Ultimately, utilizing contingencies strategically can provide you with valuable options in the real estate market, allowing you to make informed decisions and potentially secure a home at a favorable price.
