Creating Better Residential Real Estate Contracts by Including Contingencies

Contingencies are an expected part of most residential contracts. So much so, that contracts used by real estate agents are full of them already as standard language...what happens regarding inspections, who gets earnest money returned and when, and the like. But a lot of issues and conditions are not included

Here are 10 contingencies that should be included in most residential contracts for purchase:

1) Right to an Inspection: This is typically included in most state contracts that Realtors use, but what if it's not in there? Inspections are perhaps one of the most critical issues. You must have the ability to have a third-party inspect the property and get remedies if issues are discovered.

2) Affordable Hazard Insurance Premiums: If you're getting a loan, you'll need insurance for the property. But some homes have had problems with multiple claims in the past, and insuring them is very expensive. Likewise, you may decide that your budget has a threshold for what you can afford for insurance. Write into the contract an annual-premium limit (ask your local agent or get a recommendation if you're new to an area) above which, will allow you to walk away from the contract.

3) Cleanliness on Moving Out: Some contracts say only simple things like, 'the seller shall leave the premises broom clean,' and 'free of personal possessions,' That's pretty ambiguous on both accounts...for example, maybe old paint cans get left behind, but if you're a buyer and planning on repainting, it can be very expensive to recycle or otherwise properly dispose of old paint safely. I contend that paint is a personal possession, but it should be spelled out. As well, the cleanliness can best be addressed by requesting a specific professional cleaning service to come in on or before closing day.

4) Which Appliances Stay: There is a saying that you're not a real agent unless you've bought a refrigerator for a client at some point...

All appliances are up for interpretation...which is personal property and which is part of the house and considered a fixture? Some contend that a dishwasher, for example, because it is plumbed and wired into a home is a permanent fixtures and should stay, but others feel like they go with sellers. Absolutely identify by name, every appliance that a buyer expects to find on moving day.

5) Closing Parameters: Buyers typically have the right to determine who does their closing (say, a local attorney or title company of choice), but sometimes the location is left up in the air. Buyers should include where the closing should be done if not at an agreed upon location, and if the buyer does not want the sellers to attend the closing, that should be noted...in some areas, all the buyers and sellers are in one big room as a local practice; on other locations, closing are done apart, maybe on separate days, so if it makes a difference to you, spell it out.

6) Penalties for a Late Move-Out: As a buyer, you'll likely be making a lot of moving-day arrangements; scheduling a truck and/or lining up friends to help; getting babysitters or arranging kennel time for animals; maybe making a cross-country trek with a moving truck and a new job that starts 3 days after you arrive. The worst scenario is to discover that the sellers just haven't left, and it's more common than you think, even when everyone knows the closing date and that moving out is part of the deal. Their foot-dragging will cost money, lost time, aggravation and hassle. Apply a daily monetary penalty for late sellers that will cover your out-of-pocket costs at least. Keep in mind, too, that once you own the place, and the sellers are still there, that they will not be responsible to damage once the title passes to you, so give them incentive to get out on time.

7) Current Code Specifications: In a typical inspection, problems will be discovered, but sometimes, issues come up as a result of code problems. A house that is old may have a number of issues that have been grandfathered by the local municipality and still be safe or acceptable, but if they were being re-done today, would need to reflect current code standards. Insist that issues discovered in the inspection process that reflect old code parameters be updated to reflect the current code.

8) Issues Surrounding Surroundings: Some states have lengthy contracts that spell out buyer rights around things like noise, sex offender registries, bad smells, etc., but some don't. These are things that won't be uncovered in a standard property inspection, but are issues for which exercising your right to terminate a contract may be in order. Being under a jet-training facility flight path might not be acceptable, for example, but wouldn't be revealed in a home inspection.

9) Cell Service, Data Coverage: If you are considering a rural property, cell phone coverage and high-speed internet service may be a concern. If you work from home, or just need a wider spectrum of access, it's possible that your prospective home won't have cell coverage or a DSL line, for example. While satellite service is often an option in these areas, they are notorious for slower, less reliable service. You should be clear that these issues are paramount, if they are for you.

10) Getting the Loan You Want: While most contracts have a place where loans are discussed, it's good practice to spell out what loans you're willing to consider; the rate, type, and especially a cap on the interest rate to protect your from spikes in interest that might take effect before you're able to finalize a contract.

Almost all contracts have contingencies either built into the contract already covering either a few things or pages of issues. Read your contract very carefully, and let you agent show you what's missing, especially if there are concerns locally that they know about that should be included.

Air-tight contracts are impossible, but contracts with great coverage and well-reasoned contingencies are well within reach for any buyer.