What are the Contingencies in Real Estate?

US Realty Training

18 Jun 201805:38

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

00:00

🏠 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.

05:02

🛡️ 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

A contingency in real estate refers to a condition that must be met for a contract to be fulfilled. In the video, the speaker uses the term to describe 'only ifs' that a buyer might include in their offer to purchase a property. These conditions act as safety nets for the buyer, allowing them to back out of the deal if certain criteria are not met, such as the property passing an appraisal or inspection. The concept is central to the video's theme of explaining real estate contracts and buyer protections.

💡Appraisal Contingency

An appraisal contingency is a condition in a real estate contract that stipulates the property must appraise for a certain value, typically the purchase price. If the appraisal comes in lower, the buyer may renegotiate the price or back out of the deal. In the script, the speaker explains this as a key contingency that must be completed within 17 days, emphasizing its importance in protecting the buyer's investment.

💡Inspection Contingency

The inspection contingency is another common condition in real estate contracts that allows the buyer to have the property inspected by a professional. If significant issues are found, the buyer can negotiate repairs or terminate the contract. The speaker in the video uses this term to illustrate how buyers can protect themselves by ensuring the property meets their expectations, with the contingency needing to be removed within 17 days.

💡Loan Contingency

A loan contingency is a provision in a real estate contract that allows the buyer to secure financing for the purchase. If the buyer cannot obtain a loan, the contingency allows them to cancel the contract without penalty. The video emphasizes this as a crucial safety net for buyers, with a specified timeline of 21 days for the buyer to secure financing.

💡Safety Net

In the context of the video, a safety net refers to the protections a buyer has in place through contingencies. These conditions allow the buyer to avoid penalties if they decide not to proceed with the purchase under certain circumstances. The speaker uses the term to highlight the importance of these protections in a real estate transaction.

💡Offer

An offer in real estate is a proposal made by a buyer to purchase a property at a specified price and under certain terms. The video script discusses how an offer can include contingencies, which are conditions that must be met for the offer to become a binding contract. The offer is a fundamental part of the real estate negotiation process.

💡Real Estate Contract

A real estate contract is a legally binding agreement between a buyer and a seller that outlines the terms and conditions of a property sale. The video script explains how these contracts can include various contingencies, which are critical for understanding the buyer's and seller's obligations and protections.

💡Removal of Contingencies

The removal of contingencies is the act of a buyer formally accepting the terms of a real estate contract by waiving their right to back out based on certain conditions. In the video, the speaker describes this as the point of no return, where the buyer confirms that all conditions have been met and they are committed to the purchase.

💡Inspection Report

An inspection report is a document prepared by a professional inspector detailing the condition of a property. The video script uses this term to illustrate how a buyer might use an inspection contingency to protect themselves from purchasing a property with significant issues, as revealed in the inspection report.

💡Deposit

In real estate, a deposit is an initial payment made by the buyer as part of the purchase agreement. The video script mentions how a buyer can request their deposit back if the property does not meet the conditions of their contingencies, such as failing an inspection.

💡California Association of Realtors

The California Association of Realtors is a professional organization that provides resources and standard contracts for real estate transactions in California. The video script references their contracts to emphasize the importance of understanding the terms and conditions that might be included in a real estate agreement.

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.