by Attorney Ilona Bray

Find out how to make your home purchase contingent on getting certain information and answers.

Buying a house isn't like buying a television, where you can return it within 30 days if you don't like it. Once the deal is done, it's pretty much done. Given that this is probably the biggest purchase you'll ever make, it's worth investigating whether you're doing the right thing before the purchase is finalized.

For this reason, the standard home purchase contract lists several conditions that must be met before the closing will take place, covering issues like financing, inspections, insurance, and more. These conditions are called "contingencies."

How Contingencies Work

You, as well as the seller, will probably ask that a number of these contingencies be added to the written purchase contract. (As a practical matter, you'll be doing most of this on paper, within your written offers and counteroffers.)

The contract will build in a certain amount of time (usually several weeks) between the contract signing and final "closing" of the deal. That gives you and the seller a chance to deal with these contingencies.

During this time period, you and the seller will be working hard to meet or remove the various contingencies (for example, by securing a loan), and will advise the other party of progress being made. If either of you fails to meet or remove a contingency, you can either call off the purchase or renegotiate around the issue.

Types of Contingencies

Some contingencies are quite standard, and both you and the seller would probably be foolish to reject them. For example, a buyer's inspection contingency is quite common -- in which you condition the closing on receiving and being happy with the result of reports from inspectors whom you hire. (In very hot markets, however, desperate buyers have been known to waive this contingency and take the property "as is.")

Other contingencies are less the norm, and become a matter for negotiation. For example, the seller might ask that the deal be made contingent on his or her successfully buying another house. If you need to move quickly, you can reject this contingency, or demand a time limit (of course, you risk failing to reach a contract with the seller in this case). If, on the other hand, you can wait, accepting this contingency might provide grounds upon which to request other concessions from the seller, or at least assure that the deal will go forward. (Likewise, you can request that the deal be made contingent on your successfully selling your house.)

Here are details on some common contingencies found in purchase contracts:

Financing Contingency

The standard home purchase contract will be contingent upon you, the buyer, securing financing with which to buy the house. It will also state a period of time within which you intend to get the financing. (If you're fortunate enough to be able to make an all-cash offer, you can skip this contingency.)

Most contracts will also describe how much of adown payment you plan to make, and what type of financing you're willing to accept. For example, if the contract says you're planning to get a fixed rate loan at 6% interest (meaning that you'll have to get such a loan before you'll remove the contingency), the seller can't later demand that you accept one at 8%, or an adjustable-rate loan instead. To protect the seller, however, the standard contract will obligate you to start securing financing within a stated period of time, and to make reasonable efforts to complete the process.

Inspection Contingency

Your contract should give you the right to do one or more home inspections by a certain date. It should also specify that you must be satisfied with what the inspections reveal, and should explain your options if you're not satisfied -- that is, if the house needs more basic fixing up than you're willing to accept.

Most buyers request the right to send in a pest inspector and a general contractor. If the house is old, in poor condition, or in a region known for mudslides, floods, mold, toxic substances, or earthquakes, you might also want to do more specialized inspections.

If you're buying a newly constructed house, you may want to schedule inspections during key phases of construction, plus a final inspection when the house is completed.

Inspection reports will inevitably reveal some problems. Normally, you and the seller will agree on how much the seller will pay or reimburse you for in order to fix these problems. However, a seller who feels you've underpaid may say "take it or leave it" -- and refuse to pay for any of the repairs. And buyers who've gotten buyers' remorse have been known to claim that a minor repair issue provides grounds to cancel the deal.

Insurance Contingency

Your lender will probably require you to buy homeowners' insurance. But what if you live in a state where not everyone is able to find coverage? In recent years, many homeowners living in states with a history of household toxic mold, earthquakes, or hurricanes, have been surprised to receive a flat out "no" from the insurance carriers. To protect yourself from this possibility, make your contract contingent on your applying, and receiving a commitment in writing, for homeowners' insurance.

Title Contingency

This contingency has to do with making sure the seller has clear "title" to (ownership of) the property. Believe it or not, more than a few renters and squatters have attempted to sell the house in which they're living. That's the extreme case, but even so, title to the property may not be as clean as you or even the seller realize. There can be "clouds" on the title (due to divorce, contested wills, or tax liens by the county government) that call the seller's right to full ownership into question.

That's why your contract should include a contingency saying that you must receive and approve a preliminary title report (done by a title company). The title company will research the chain of ownership, and also tell you whether others have any right to use the property (for example, to walk through it or drill on it for natural resources.)

Next Steps

Put your contingencies in writing, as part of your offer on the house.