What Are Contingencies? A contingency clause is essentially any clause in a contract that says the offer depends or hinges on some other event or action. For example, wording that would say, “This offer is contingent upon the buyer winning the state lottery” is a kind of contingency clause, one that obviously no sane seller would accept. I once knew a builder whose advice was, “No matter what the contract, always be sure that somewhere in it, it says, ‘subject to.’ I don’t care what comes after the ‘subject to,’ just as long as it’s in there.” The words “subject to” have essentially the same meaning as “contingent.” They make the sales offer hinge on some event or action. What my builder friend meant was that as long as those words were in it, he could get out of the contract if he had to. He had many experiences fighting subcontractors, landowners, and others, and I firmly believe to this day that he could get out of any contract with those words in it. For your purposes, however, a contingency clause is very useful to protect you against an unforeseen change of condition. Some contingencies are absolutely desirable for the sales agreement and few agents would hesitate to put them in. Typical contingency clauses include:

Common Contingency Clauses  Financing If you can’t get the financing you need, there is no deal and you get your deposit back.  Disclosures You have the right to approve the seller’s property disclosures. Don’t approve them and there’s no deal.  Professional Inspection You have the right to approve a professional inspection report. Don’t approve it and the deal’s off.

The more you protect yourself with contingencies, the less the seller is going to want to sign your offer. After all, if you make it full of contingencies, it’s like Swiss cheese; it holds little water and you could slip out of the deal at your pleasure.

What About a Pending Sale

Contingency? Here you make your offer contingent on the sale of your current home, which is already in escrow. If your current home falls out of escrow, then you’re not committed to move forward with the new deal. You could also make the sale of your new home contingent, even if you haven’t yet found a buyer for your old one. In a cold market, sometimes sellers who are desperate will accept this contingency. In a good market, however, most won’t. They realize they are tying the sale of their house to the sale of someone else’s house. It’s like having to make two deals instead of one.

What About a Frivolous

Contingency? As noted, you can make the deal contingent on almost anything, from the occurrence of sunspots to your winning the Irish Sweepstakes. However, don’t expect a seller to be thrilled about these. The more frivolous your contingencies appear, the less likely you are to get the seller to accept your offer.

Who Should Write the

Contingency? Some purchase agreements have the most common contingencies already written in. Your agent simply checks the appropriate box and the contingency is in effect. Of course, you may want to have your attorney check the language used in the agreement. If a new contingency is to be written, it should be handled by an attorney. This does not mean that a good agent can’t do it. Many agents with years of experience can handle these easily. Even so, it wouldn’t hurt to have an attorney recheck it, just to be sure.

What Terms Should I Offer? The terms of a purchase can sometimes be more important than the price. (Terms are often structured in the form of a contingency; see above.) Sellers are often hung up on price. Offer them their full price and they may give you ridiculously favorable terms. For example, to get their price, the sellers just might be willing to finance the sale (carry back a mortgage). If you’re having credit problems, it’s something to consider.

What Are Time Terms? There are other terms you might consider. One of the most crucial is time. How long do you have to secure financing, to come up with the down payment and closing costs, to close the escrow? Time is often negotiated. Perhaps the seller wants 90 days before moving out. That suits you fine, so there is immediate agreement. On the other hand, perhaps the seller wants to close escrow in 30 days, but you feel you’ll need 90 to raise the cash for the down payment. Now time is a negotiating point. You compromise. You’ll take a chance on coming up with the cash in 60 days, but the seller has to be willing to lower the price $1000 or throw in the refrigerator. The seller balks and says the most he can go is 45 days, but he’ll lower the interest rate on the second mortgage he’s carrying from 9 percent to 8 percent and throw in the refrigerator. Is it okay with you?

Now you have to make a judgment call. The agent may suggest a “bridge” loan (temporary financing until you can get your cash) to cover the extra time you’ll need. But this costs you extra money. In the final analysis, you’ll have to weigh all the factors regarding time. Just remember it’s a negotiating card, one that you can play.

What Are Other Terms? There are a host of other common terms in a real estate transaction, almost all of which are negotiable. For example, you may agree to pay full price for a property if the seller agrees to pay your closing costs. Or you’ll buy only if the seller agrees to pay for a special mold and mildew inspection (offered by some termite and fungus infestation removal companies) as well as any repair work removing black mold. Or . . . ? Unfortunately, throughout all of this bargaining you’re going to have to pretty much rely on yourself. Certainly your agent will be there to try to protect you. However, if you want some particularly onerous terms (to the seller), your agent might not be too happy, as it could make it harder to get the sellers to sign. And I’ve never met an agent who wanted to work harder closing a deal. Thus, it’s up to you to get the best terms. As noted earlier, the time to consult an attorney is before you need one. At this juncture a real estate attorney can prove extremely useful. The attorney can create a purchase agreement that protects you and provides the most favorable terms (for you).

TRAP THE ATTORNEY PITFALL Beware of attorneys who work too hard for your interests. In general, real estate agents dread attorneys, not because they don’t protect people, but because they tend to muck up deals. There’s an old saying among real estate agents that the fastest way to have a deal go sour is to bring in an attorney. Yes, you want your rights protected and you want the most favorable terms. But

you also want to be able ultimately to purchase the house. An attorney can create a sales contract so favorable to you that no seller will accept it. As with the ancient Greeks, moderation is in order. Allow your attorney to draw up the terms correctly and to advise. But also rely on common sense.

When Do You Get

Possession? The question here is: When will you take possession of the property? The most common answer is at the close of escrow after title has been recorded in your name. The danger with occupancy is that the sellers won’t move out. There are many reasons the sellers might not move. A new house they are planning to move into might not be ready. Or there might be illness in the family, and a family member might not be easily moved. Or they could just be ornery. Whatever the reason, if they don’t move, it spells trouble for you. If the sellers are still in possession of the house once you get title, you can’t easily have them removed. (In the old days “self-help eviction” was allowed you could physically go in and throw them out! That’s been a taboo for quite a few decades now.) To get the sellers out you might need to conduct an “unlawful detainer” action through the courts eviction. This usually takes at least a month, may cost upwards of $1000 in costs, and usually requires the services of an attorney.

RENEGOTIATE THE DEAL It’s important to understand that a final walk-through is not supposed to be an opportunity for you to reconsider your purchase or reopen negotiations. It is just supposed to be a chance for you to examine the property to see that it’s as it was when you originally made your offer. Most savvy sellers will include a clause stating that if something of consequence is found wrong, the sellers have the right to correct it that the final walk-through is not intended to be a new beginning in negotiating price or terms.

Nonetheless, buyers have used faults found on the final inspection to attempt to back out of a deal at the last minute. (Their reasons can vary from finding a serious fault in the property, to finding another more preferable house.) My suggestion is that if you want to renegotiate based on the final walk-though, you better have found some serious problem with the house, or else you’ll have an angry seller to contend with. Sometimes agents will suggest that a specific date for the final walk-through be written into the purchase agreement. I feel this is usually a bad idea. You don’t want a specific set date because you don’t know when escrow will close and you’ll get occupancy. I prefer that the final inspection should be set as close to the day escrow closes as possible, preferably a day or two before. Keep in mind that if you inspect the property too early, the sellers might still be living in it, and furniture and carpets not yet removed might conceal potential damage. Try to be sure the sellers are out before you have your final inspection. (This also helps solve the problem of occupancy noted above.)

Don’t expect the property to look as clean as it did when you first saw it. If the seller was living in the property when you first saw it, carpets and furniture hid a lot of marks and scuffing. Once the furniture and carpeting are removed, these stand out like sore thumbs. Dark scratch marks on walls and scrapes on floors are common. Indentations in carpeting where heavy furniture stood are also common, as is some slight discoloration. (Most of this carpet indentation will tend to disappear within a few days on its own.) What you need to look for is any significant breakage, damage, or other condition that was not there when you first saw the home or when you had your professional home inspection. Also, check for any damaged or broken items that the seller did not disclose in the sales agreement or accompanying documents. What specifically should you look for?  Holes in wall, broken plaster  Broken windows  Inoperative or broken appliances such as stove, garbage disposal, and oven

Faulty or broken water heater (as evidenced by no hot water), gas heater, or air conditioner. Check to see that the heater heats and the air conditioner cools.  Gashes, slashes, or marks in wood floors that will require redoing the floor  Damaged or inoperative light fixtures  Broken or inoperative heating or air-conditioning thermostat  Leaky plumbing, as evidenced by new water marks or water on floors  Faults in the electrical system, as evidenced by light switches or wall plugs that don’t work  New damage to carpet, such as dirt or, most important, cat or dog urination. I’ve seen sellers who let their pets run loose in the house after the sales agreement was signed, figuring that it wasn’t their problem any more. But if you accept a carpet that has been ruined by urination, it’s a big problem for you. Odor is usually the giveaway. If you suspect a problem, don’t hesitate to get down on your hands and knees to check it out. Better to discover it now than when you’re the owner.

I have found that urination from pets cannot be effectively removed from carpeting. Typically the carpeting and usually the pad underneath (and sometimes even the flooring!) must be replaced. An entire house’s carpeting might need to be replaced to match a small area of damage. I won’t accept a carpet problem caused by pets. Insist that it be fixed, even if that requires the sellers to recarpet the entire house. (Be sure you approve the quality of carpeting and padding they use.)

Several national and some local companies offer plans that give you some insurance protection for the major systems of your home. Typically they cover plumbing (including water heater), heating, air conditioning, electrical, appliances, and so forth. The idea is that for a set period of time after you move in (usually one year), should there be a problem, the home protection company will cover it (minus a small deductible). The cost is usually nominal, a few hundred dollars for a year’s worth of coverage. In most purchases the sellers pay for the plan; you pay the deductible (usually under $50) for each time you call someone out to deal with a problem. Most plans are renewable, so if you like the one you’ve got, you can keep it. (Of course, you’ll have to pay for it after the first year!) The home protection plan should be included as part of the purchase agreement. The agreement should state that it will be purchased at the time of sale, and that the seller will provide the appropriate warranties. (The seller is usually required to verify that everything is in working condition before the plan takes effect.) If you wait until after title transfers, you either may not be able to get the plan or may find that you have to warrant the condition of the various home systems only to discover that some aren’t working!