What are the Contingencies in Real Estate?
Summary
TLDRIn this video blog, Robert Rico from California Realty Training explains the concept of contingencies in real estate transactions. He emphasizes that contingencies act as 'only if' conditions, such as passing appraisals, inspections, and loan approvals, which must be met for a sale to proceed. Rico outlines the default time frames for these contingencies: 17 days for both appraisal and inspection contingencies, and 21 days for the loan contingency. By understanding and managing these contingencies, buyers can ensure their investment is protected and make informed decisions.
Takeaways
- 😀 The speaker, Robert Rico, is from California Realty Training and aims to provide valuable content to the audience.
- 🏡 The main topic of the video is 'contingencies' in real estate transactions, which is crucial for new agents to understand.
- 🤔 Contingencies are conditions or stipulations in a real estate contract that must be met for the deal to proceed.
- 💰 The buyer makes an offer to the seller with certain conditions, often called 'only ifs', which are essentially contingencies.
- 🏦 The three most important contingencies mentioned are the appraisal contingency, inspection contingency, and loan contingency.
- 🔍 The appraisal contingency ensures the property appraises for the agreed-upon price, protecting the buyer from overpaying.
- 🔎 The inspection contingency allows the buyer to have the property inspected and potentially back out of the deal if major issues are found.
- 💼 The loan contingency ensures the buyer can secure financing for the purchase, protecting them from being unable to complete the transaction.
- ⏰ There are specific timeframes for removing these contingencies, with the appraisal and inspection contingencies typically needing to be removed within 17 days, and the loan contingency within 21 days.
- 📋 Once the buyer is satisfied with the conditions being met, they can sign a 'removal of contingencies' form, indicating they are ready to proceed without these safety nets.
- 🛑 Contingencies are important as they provide a safety net for the buyer, allowing them to back out of the deal if certain conditions are not met, as illustrated by the example of an unfavorable inspection report.
Q & A
What is the main topic of Robert Rico's video blog?
-The main topic of Robert Rico's video blog is about understanding contingencies in real estate contracts, particularly for new agents.
Why is it important for real estate agents to understand contingencies?
-It is important for real estate agents to understand contingencies because they are a crucial part of real estate contracts that provide safety nets for buyers, ensuring they can back out of a deal under certain conditions.
What does Robert Rico suggest calling contingencies?
-Robert Rico suggests calling contingencies 'only ifs', emphasizing that they are conditions that must be met for the buyer to proceed with the purchase.
What are the three biggest contingencies mentioned in the script?
-The three biggest contingencies mentioned in the script are the appraisal contingency, the inspection contingency, and the loan contingency.
What does the appraisal contingency mean in a real estate contract?
-The appraisal contingency means that the buyer will only proceed with the purchase if the property appraises at the agreed-upon price, typically the offered price.
What is the inspection contingency and why is it important?
-The inspection contingency is a condition in the contract that allows the buyer to back out of the deal if the property does not pass a professional inspection. It is important as it protects the buyer from purchasing a property with significant defects.
What is the loan contingency and how does it protect the buyer?
-The loan contingency is a condition that allows the buyer to cancel the contract if they are unable to secure a mortgage loan. It protects the buyer from being obligated to buy a property they cannot afford.
How long do the appraisal and inspection contingencies typically last in a real estate contract?
-The appraisal and inspection contingencies typically last for 17 days in a real estate contract.
What is the duration for the loan contingency in a real estate contract?
-The loan contingency typically lasts for 21 days in a real estate contract.
What happens when a buyer is satisfied with all the contingencies and decides to proceed with the purchase?
-When a buyer is satisfied with all the contingencies, they will sign a document called 'removal of contingencies', indicating that they are ready to proceed without any safety nets.
Why is the inspection report crucial in the process of buying a house under a real estate contract?
-The inspection report is crucial because it provides detailed information about the condition of the property. If the report reveals significant issues, the buyer can use the inspection contingency to back out of the deal and request their deposit back.
Outlines
🏠 Understanding Real Estate Contingencies
In this paragraph, Robert Rico from California Realty Training introduces the concept of contingencies in real estate contracts. He explains that contingencies are conditions, often referred to as 'only ifs,' that must be met for a buyer to proceed with a purchase. The three main contingencies discussed are the appraisal contingency, the inspection contingency, and the loan contingency. Each of these provides a safety net for the buyer, allowing them to back out of the deal under certain conditions. The paragraph also outlines the typical timeframes for removing these contingencies: 17 days for appraisal and inspection, and 21 days for the loan. The importance of understanding contingencies is emphasized for both buyers and sellers to ensure a smooth transaction process.
🛡️ The Importance of Contingencies for Buyers
This paragraph delves into the practical implications of contingencies for buyers. It uses a scenario where a buyer makes an offer on a house with several 'only if' conditions, such as the house passing an appraisal, inspection, and the buyer securing a loan. The paragraph explains that if the house fails to meet these conditions, the buyer can cancel the deal and get their deposit back due to the inspection contingency. This serves as a safety net for buyers, allowing them to protect their investment. The paragraph concludes by emphasizing the temporary nature of these contingencies and the importance of understanding them to avoid overwhelming complexity in real estate transactions.
Mindmap
Keywords
💡Contingency
💡Appraisal Contingency
💡Inspection Contingency
💡Loan Contingency
💡Safety Net
💡Offer
💡Real Estate Contract
💡Removal of Contingencies
💡Inspection Report
💡Deposit
💡California Association of Realtors
Highlights
Introduction to the video blog by Robert Rico from California Realty Training.
The video aims to provide valuable information for new real estate agents.
Discussion on the importance of understanding real estate terms and contracts.
Introduction of the topic: 'Contingencies' in real estate transactions.
Explanation of 'contingencies' as 'only ifs' in a real estate contract.
Description of an offer with contingencies as a safety net for the buyer.
Appraisal contingency as a condition for the offer to stand.
Inspection contingency as a way to ensure the property's condition meets the buyer's expectations.
Loan contingency as a condition based on the buyer's ability to secure financing.
Default time frames for removing contingencies in a contract.
17-day time frame for appraisal and inspection contingencies to be removed.
21-day time frame for the loan contingency to be removed.
Process of removing contingencies by the buyer through signing a document.
The point of no return once contingencies are removed by the buyer.
Example of a buyer using the inspection contingency to cancel a deal.
The importance of contingencies for a buyer's safety in real estate transactions.
Encouragement for new agents not to be overwhelmed by real estate terminologies.
Closing remarks emphasizing the simplicity of understanding contingencies.
Transcripts
hello everybody thank you for coming to
this week's video blog my name robert
rico again robert rico california realty
training hoping to bring some good stuff
to you listen we are more than happy to
bring this stuff to you all you gotta do
is take a piece of it and if that one
piece makes you better you're welcome
huh yeah you're welcome so listen
today's topic is going to be a pretty
darn good one also
you as a new age are going to go into
this field like whoa what do we know
what i'll get myself into what does all
these terms mean what is this contract
what is all this stuff oh my god i did
the right thing you did do the right
thing you just got to relax and one of
the things you're probably going to say
is oh my god what what is this thing i'm
here there i'm hearing this thing called
contingencies oh my god what is it i
don't know what it is what do i do how
do i do it is it beneficial to my client
is it not beneficial to my client
contingencies contingencies
contingencies listen
contingencies that's a big that's a big
deal and it's rather simple to
understand ready here it goes i'm going
to make it as simple as possible because
there's a lot of textbooks and the
contracts themselves from carr
california association of realtor
contracts all right have all these
terminologies and the offers and you're
going to think oh my god
should i explain this to my client
should i not well you might want to
understand it got it you might want to
understand it but it's rather simple
ready because i'm going to i'm going to
paint a very simple picture here it goes
what is a contingency ready here it goes
you got a buyer you got a seller buyer
says to the seller hey seller how are
you doing i'm gonna make you one million
dollar offer just the way you like it
the seller takes the offer the seller
reviews the offer offer is just three
likes and a million dollars but there's
a few contingencies in there now what
does that mean the buyer over here
should i'll give you a million bucks
yeah i'll give you million dollars but i
want my contingencies intact my
contingencies intact this is the deal i
call these contingencies ready wait for
it
i call them only ifs i call them only
ifs hey i'll buy your house a million
bucks only if i'll buy your house for a
million bucks only if i'll buy your
house for a million bucks only if only
f1 ready here it goes
i'll buy your house only if
it passes the appraisal it appraises at
a million dollars that's called the
appraisal contingency is you with me hey
i'll buy your house only if
it passes my inspections guide what
should we call that
of course inspection contingency hey
i'll buy your house only if hell i can
get a loan what do we call that it's
called the loan contingency you with me
so the buyer is saying hey listen sure
i'll give you a million bucks absolutely
but there's a few things i have as a
safety net i want to make sure to praise
that a million bucks i want to make sure
i can get a loan for this house
and last but not least i want to make
sure it passes my inspections now if it
passes all those three now there are a
couple of other contingencies but those
are the three biggest most important
ones and if it passes all my only ifs
which in my opinion equals contingencies
the buyer says i am good to go
now the question is here part two the
question is how long do these
contingencies last how long are these
safety nets in place how long are the
only ifs
available to the buyer ready here it
goes and it's very simple and it's it's
by default by default on the contract
the appraisal contingency must be done
within 17 days the buyer must remove
that on the 17th day this inspection
contingency the buyer must remove that
contingency the buyer must remove that
safety net
on day 17.
and when it comes to the
loan contingency the buyer must remove
that it is now 21 days for the loan
contingency so let's review that real
quick
appraisal contingency 17 days
inspection contingency 17 days
loan contingency 21 days got it good and
that's how it works now once the buyer
removes them and says all right mr
seller i'll give you the million bucks
and it passed my appraisal and it passed
my inspection and it passed my loan
contingency i was able to put all those
things in play and i'm good to go
the buyer says i'm so happy and i'm so
ready to rock and roll this house i'm
going to remove my safety nets the
appraisal contingency the loan
contingency the inspection contingency
are no longer needed by me the buyer so
take them off you know how i'm going to
take them off i'm going to sign off and
say i remove my contingencies the buyer
is going to say i'm going to remove my
contingencies i'm going to sign here
what's called removal of contingencies
he removes them on this piece of paper
here and the buyer now has no safety net
it's the point of no return all the only
ifs have been passed the price was good
the seller is happy the buyer is happy
it's a beautiful day and it's all done
contingencies is it important yeah why
because the buyer has some safety that's
in place
is that important yes quick example
ready quick example
buyer says i'll give you a million bucks
and he loves this house you can see this
house you know you can see himself in
his family's house for the next 30 years
don't forget the only ifs he has the
only if inspection he goes in the house
hires an inspector inspector goes in the
house inspector inspects the house
inspector comes back with the report
what should we call that report hello
yeah inspection report comes back with
the inspection report
gives it to the buyer and looks at the
buyers in the eyes looks at the buyer in
the eyes and says if i were you i
wouldn't buy this house this house is
about to fall apart
the buyer because he had the inspection
contingency in play
can cancel
and request his
deposit back
it's as simple as that it didn't pass
the only if
it didn't pass the contingency make
sense these are beautiful beautiful
uh things for the buyer to have and play
got it good hope you understand how that
works now listen don't let it bombard
you it's very simple it's an only if by
the buyer it's a i want my safety net by
the buyer however you cannot have this
ethernet forever
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