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Contingencies to protect buyers from a softening real estate market

On Behalf of | Mar 6, 2023 | Real Estate |

The real estate market is unpredictable, to say the least. Buyers have to be ready for prices to fluctuate and for supply or demand to change suddenly. In the last few years, prices have increased steadily, and now many markets are witnessing sale prices slipping. Prices in the Newport Beach area have certainly cooled in 2023 when compared to 2022.

Lower home values may initially seem like an ideal situation for buyers as they can potentially purchase more home for less. However, times of active price reduction in the real estate market also put buyers at risk of overpaying or having their closings fall through at the last minute. Proper contingencies in an offer can help to reduce the risk involved in making an offer while prices are dropping.

How contingencies protect buyers

Buyers typically deposit money with their agent, who will use those funds as earnest money to show their sincerity when making an offer. The seller doesn’t have control over the earnest money until after closing, and it becomes part of the down payment on the property.

Earnest money is at risk if the buyer doesn’t follow through with their offer to purchase the property. Contingencies are clauses that allow a buyer to cancel without endangering their earnest money.

An inspection contingency is common, as it allows someone to cancel if the inspection turns up significant issues with the property. Financing contingencies are also popular, as they protect those who cannot secure a mortgage to complete the transaction. Appraisal contingencies are particularly important when the market starts to soften, as they allow a buyer to back out if the appraisal comes in low due to shifting local property values.

The right protection matters in re: what may turn out to be the biggest transaction of one’s life. Buying a home means spending multiple years of salary at once for most people. It also means becoming responsible for taxes, insurance and property repairs. Having professional legal support makes it easier for those who are purchasing real estate to include the appropriate terms in their offers to effectively protect themselves. In these ways, getting help can take a lot of the risk and stress out of a residential real estate transaction.