Contingencies to Save your Earnest Money Deposit: Three Basic Tips
So what contingencies are there to prevent you from losing this EMD? Three most common contingencies that all buyers should use are home inspections (fact-finding), financing and appraisal, and lastly disclosures.
With the home inspection it’s one of the most liberal contingency to use because it allows the right to terminate with no questions asked; of course with this contingency in place you need to abide by the guidelines set forth earlier on. If you find unfavorable items during the course of the inspection and based upon the contract you can either renegotiate with the seller to fix those items or terminate the contract, rendering it null and void, then requesting your earnest money deposit be returned in full.
When you initially get your pre-approval, that is only part of the loan process. If done correctly it says that they have reviewed part of your information and you have the ability to purchase; the full application has not yet begun. Under the Financing and Appraisal Contingency, all of your information submitted will be verified to determine eligibility to purchase a home. At this time for whatever reason you aren’t able to be financed, the financing contingency will kick in and allow you to receive your full deposit back (if that’s what the contract stipulates). Furthermore, in the event of an appraisal that comes back lower than the asking price, you’re able to either renegotiate the asking price or request the EMD be returned.
Lastly, and these contingencies should really be covered in the beginning of the process, they are the disclosures. Buyers must be able to review Home Owners Association Documents within a specified period of time after ratifying a contract or they can terminate the contract all together. If buyers wish not to move forward with a purchase because of the bylaws, they have the right to do so as well. Other disclosures that must be presented are the Disclosure and Disclaimers, Notice to Purchase about the Disclosure and Disclaimer which provides why they receive this document and who must disclose or disclaim about the property. If the seller is exempt from disclosing or disclaiming the Notice to Purchaser will advise them and they are generally, Sheriffs sale, tax sales, foreclosures and especially estate sales. They usually have no idea as to the condition of the property.
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