Use contingencies as a safety net when buying or selling your home
You've found the home you picture yourself living in and now you're ready for the next step - making an offer. Today I'm going to talk about one of the standard contingencies to a purchase contract. - the attorney approval period.
These contingencies are designed to protect the parties to the contract, namely buyer and seller, by detailing conditions that must be met before the closing will take place. In this series, I'll be covering them in chronological order (for the typical transaction), starting with the attorney approval period.
The attorney approval period is typically between 3 and 7 days, although it can be longer. I counsel my clients so they understand that during this contingency period, the contract can be cancelled by either party for any reason. If the contract is cancelled during the contingency period, the contract deposit (also called earnest money deposit) is returned to the buyer, under normal circumstances.
So, imagine this sellers. We have a 5 day attorney approval date and your buyer gets cold feet on day 3. Their attorney can cancel the contract by notice to your attorney and they will receive their deposit back. I counsel sellers to wait out this time period before making any potentially costly decisions - like putting a deposit on a moving truck etc.
And you buyers out there, if the seller gets a better offer on day 4, they can cancel your contract and go with the higher offer. You will usually be given the opportunity to improve your offer, but not always. The seller is not morally or legally required to stay in the contract during this period so please, make sure your dates match your needs!
An important strategy for buyers and sellers is to set the length of this contingency period according to current market conditions. As an example, if you are buying and there's a lot of competition, set the date short - 3 days. You'll have less exposure to being bumped by a better offer.
For either party, I recommend ensuring the other contingency dates are consistent with the attorney approval date. One example - as a buyer, you don't want to find yourself having to pay for a structural inspection before the attorney approval date because the seller can still cancel the contract and you will be out the expense of the inspection.
The attorney approval period can feel like limbo, but you'll find the rest of the time before your closing goes by very quickly!
Next time, I'll be discussing the structural inspection contingency. Please feel free to comment or email me directly if I can answer any questions.