The Use of a Real Estate Contingency Clause Gains Popularity in Market Shift

In the hot real estate market we recently experienced, using a real estate contingency clause was not a common practice. However, with the recent shifts in the market and buyer behavior, we will see a rise in the use of contingency clauses in sales contracts.

Contingent means “depending on certain circumstances.” A real estate contingency clause can be written into a sales agreement so the buyer can explore or satisfy certain conditions before they are ready to move forward with the sale. It provides the buyer with a safe exit strategy preventing them from losing their earnest money.

The common real estate contingency clauses include:

Mortgage Contingency

The buyer has a specific time to obtain the necessary financing approval for the home purchase.

Title Contingency

The title company will do a title search of the property for the buyer’s review. If there are any objections to the status of the property, the seller will have to rectify the issues to close the home.

Home Inspection Contingency

A specified period is allowed for the buyer to have a home inspection and report the findings to the seller, along with any repair requests. The buyer can also terminate the sales agreement. Reasons to terminate might include if the inspection is unsatisfactory or the seller refuses to make or compensate for repairs.

Home Sale Contingency

If the buyer needs to sell their current home to purchase a new home, they may elect to have this contingency written into the agreement. The parties will negotiate a deadline to determine an acceptable date for the buyer to sell their home.

Appraisal Contingency

An appraisal contingency ensures that the home appraises for the indicated sales price or a minimum sales price. If it does not, the buyer can cancel the contract. This contingency is commonly a lender’s stipulation if the buyer is financing.

Homeowners Insurance Contingency

The buyer must apply for and obtain a homeowners insurance policy on the property. Either party can terminate the contract if they cannot attain the insurance. 

Any real estate contingency clause’s requirements must be satisfied before a sale can close. The contingency clauses are included in the buyer’s initial offer or added throughout the negotiation phase.

These contingencies protect either the buyer or the seller by providing a way for a designated party to back out of the transaction if certain conditions can’t be met. 

There are several benefits to using contingencies in a real estate sales contract, both for the buyer and the seller. 

Some of the most common benefits include:

Protection for the Buyer 

Contingencies provide a way for the buyer to back out of the transaction if certain conditions are not met, such as if the buyer cannot obtain financing or if the property inspections aren’t satisfactory. This helps protect the buyer’s investment and ensures they are not stuck with a property that does not meet their needs or expectations.

Protection for the Seller

Contingencies can also protect the seller. For example, a mortgage contingency ensures the buyer can obtain financing approval by a specified date. This helps protect the seller from the possibility of the sale falling through if the buyer cannot secure funding.

Negotiating Tool

Contingencies can be a negotiating tool. For example, a buyer may be willing to offer more for a property if they know they will have a mortgage contingency included in the sales contract, which gives them added protection in case they are unable to secure financing. Similarly, a seller may accept a lower offer if the buyer is willing to remove certain contingencies, such as a home inspection contingency.

Closing Date Protection

Some contingencies also specify the property’s closing date and are helpful for both buyer and seller to protect their interest. For example, a buyer may include a contingency that allows them to cancel the contract if the closing date is delayed beyond a specific date, ensuring they do not lose out on other opportunities. On the other hand, a seller may include a contingency that requires the buyer to close by a specific date, which gives the seller a sense of security in case they have other transactions lined up after this one.

Legal Safeguards

Contingencies also serve as a legal safeguard, legally enforceable in the contract. In addition, they provide a clear understanding of the terms and the requirements of both the buyer and the seller, which can be helpful in case of any dispute.

Contingencies are essential to a real estate transaction and provide valuable protection for buyers and sellers. They help ensure that the transaction goes smoothly and that both parties are satisfied with the outcome.

Contingency Period

Each contingency should have a designated timeframe to complete. The type of contingency determines the time. The requirements will vary depending on the kind of contingency. The responsible party must meet them within the timeframe unless both parties agree to extend. All rights are forfeited if the contingency period expires without a response or an extension.

Why are contingencies coming back?

Before the post-pandemic hot real estate market, a real estate contingency clause was not an unusual addition to any offer. However, because the inventory of homes was so scarce during the past few years, many buyers were excluding any contingency to have their offers even considered in multiple offer situations.

The competitiveness of the market spurred the trend of fewer or no contingencies. With limited inventory, buyers often faced a multiple-offer situation on homes they wanted to buy, causing many buyers to choose to waive many contingencies in their offer. As a result, sellers are more likely to accept an offer with fewer contingencies to ensure the sale of their home.

With interest rates at historic lows, buyers were more likely to secure financing or find finance programs without selling an existing home. In addition, many lenders began offering more flexible underwriting guidelines, which made it easier for buyers to qualify for loans.

As the market is settling, a real estate contingency clause has again gained importance in a real estate transaction. For buyers, a contingency can help ensure they are able to obtain financing and that the property is in good condition before closing. For sellers, contingencies can provide a way to back out of the transaction if the buyer cannot secure financing or is dissatisfied with the home inspection.

What should you know about a real estate contingency clause?

• Contingencies are conditional. 
• Contingencies should have a timeframe attached to them.
• If deadlines pass, the rights to the terms of the contingency can be voided.
• Depending on the terms, a seller may still be able to market their home during a home sale contingency.
• Home inspection contingencies can be negotiated after the inspection.
• Certain contingencies can slow down the purchase process.
• The more contingencies included in an offer, the more challenging the negotiation can be. 
• Most contingencies are common and do not derail the homebuying process.

When a seller receives an offer with contingencies, they must weigh the pros and cons of accepting the offer. While taking an offer with fewer contingencies may be tempting, it is important to consider any potential risks and ensure the included contingencies provide adequate protection. Your real estate professional will be able to analyze the offer and help you negotiate to get your home sold. 

To understand the closing process, read this previous blog post.

Fall-through rates

There is no reason for a seller to be alarmed when they do receive a contingency. According to statistics, the cancellation rate of sales agreements is less than 4% of sales contracts, as reported in this recent article.

Contingency clauses will become more frequent and common than over the past few years. A real estate contingency clause can play a vital role in a real estate transaction for both buyers and sellers. Buyers and sellers can confidently enter a real estate transaction when they understand the contingency clause and terms. 

Don’t let real estate contingencies trip you up; contact me, Charles D’Alessandro, your Brooklyn Real Estate Agent with Berkshire Hathaway HomeServices – Fillmore Real Estate. As a Brooklyn real estate agent with over 35 years of experience, I help Brooklyn Homebuyers and Sellers with advice and resources. Reach me by phone at (718) 253-9500 ext. 1901 or by email at [email protected].

Buying or Selling a home in the Brooklyn Real Estate market can be a complicated process. Truly it takes a village of people for the purpose of completing just one home sale.

Wikipedia explains the phrase “It takes a village to raise a child” as an African proverb. It means an entire community of people must interact with children to experience and grow in a safe and healthy environment.

The phrase “It Takes a Village” has been adapted over the years for other references. In fact, it is a great explanation of what the home buying and selling experience is like in the Brooklyn Real Estate Market.

How many different parties do you think are involved in one real estate transaction? You may find it surprising. Let’s take a look.

SELLER

First, you need to find someone ready to sell their home. We often hear the term “Motivated Seller.” What would make a homeowner a “motivated seller?” Motivation to sell a home can come for many reasons.

When a buyer hears the seller is motivated, it may trigger many thoughts.

• There is room to negotiate the price.
• The owner may be open to making concessions to consummate the sale.
• There are material defects to the home or property that the seller doesn’t want to address.
• The home is near foreclosure.
• The seller is ready to take the home off the market and wants to see any offer.
• The seller is in a financial bind.
• The owner MUST sell now.

Determination, not desperation, may be what motivates a seller.

There are many reasons a seller would want to sell a property that is not related to the desperation thinking above.

• Job relocation
• Downsizing
• Upsizing
• Retiring to a new location
• Divorce
• Settle an estate

Knowing the seller’s motivation would be an advantage in negotiations. However, you may or may not understand the seller’s reason for selling when you place your offer. 

BUYER

Next, you need someone qualified and ready to purchase a new home. Obtaining a pre-approval from a reputable lending institution makes you a qualified buyer. They also have proven they have the necessary funds and qualifications to buy a home in the Brooklyn Real Estate Market. The reasons someone may be interested in purchasing a home vary as much as the reasons a seller would want to sell.

Some reasons to purchase may be:

• Achievement of “The American Dream”
• Sound investment
• Build equity
• Potential tax benefits

The buyer’s motivation is as important as the seller’s motivation. An apathetic buyer can take a home off the market for some time and then decide to terminate the sale. Your real estate agent can help you vet the buyer’s motivation. Unfortunately, you would need to have a crystal ball to definitely know what will happen.

LENDER

In hopes of financing the home, the buyer will choose a financial institution for their mortgage. Surprisingly, the lowest interest rate is not always the best option. You may want to compare several lenders.

Obtaining an estimate of the lender’s fees can be eye-opening. Some things you will want to compare are:

• Interest rates
• Lender fees
• Cash required to bring to closing

By all means, it is essential to find a reputable lender who is knowledgeable in lending in your area. Out of state or internet mortgage companies may not know the intricacies of a home purchase in the Brooklyn Real Estate market.

The lender should do a thorough analysis of the buyer’s financial situation to determine if they qualify for a mortgage. The buyer should offer evidence of their qualifications when they make an offer on the property.

There is a difference between a pre-qualification and a pre-approval. A pre-qualification provides the buyer with a general estimate of what they can afford. A pre-approval is more valuable because the buyer’s credit has been checked, and documentation has been verified to approve the buyer for a specific loan amount. A pre-approval can be valid for 60-90 days and should be re-verified to confirm no buyer’s status changes.

REAL ESTATE AGENTS

Typically you will find two real estate agents involved in any Brooklyn Real Estate sale. The first agent works on behalf of the seller, helping them prepare their home and price it competitively. The second agent represents the buyer and helps evaluate an offering price and terms once the right home has been found.

The real estate agents work together, bringing the buyer and seller to an agreement on the best terms possible.

You will want to find a trustworthy agent to represent you in either a sale or purchase.

What are the qualities of a trustworthy agent?

• Local Market Expert
• Proactive
• Knowledgeable
• Good Communicator
• Educated

Your real estate agent should hold the designation of Realtor®, which means they belong to the National Association of Realtors® and their local Board of Realtors®. Notably, a member of these associations must follow guidelines to ensure they are fair and ethical in their business practices.

A critical component of the buying process is the home inspection. The purpose of the home inspection is to determine if there are any major ticket items or safety issues affecting the home. In reality, these are items that the seller may not have been aware of. Nitpicking the seller for trivial issues or updates that were visible upon your visit to the home is not the purpose of a home inspection.

The home inspector will usually look at the following areas of the home:

• Exterior structure
• Roof
• HVAC System
• Hot Water Heater
• Electric Panel
• Outlets
• Windows
• Plumbing in kitchen and baths
• Attic

Be sure to check the credentials of the home inspector you choose. There are certifications required for home inspectors in the Brooklyn Real Estate market.

The home inspector will highlight areas of concern. You will also learn from the inspector the home components that may need to be replaced in the future. With this information in hand, you can make an informed decision about whether this is the right investment for you.

LAWYER

You will most likely need to hire an attorney to represent you either as a buyer or a seller when purchasing in the Brooklyn Real Estate market.

What is the lawyer’s role in a real estate transaction?

• Write and negotiate the sales agreement.
• Represent their client’s best interest.
• Review closing documents.
• Attend the closing to ensure a smooth transition.

For more information on the importance of real estate lawyers, see this previous blog post that explains it all in detail.

TITLE COMPANY

The title company researches the history of homeownership to determine the buyer receives a clean title to the property when they take possession of the home. In the event that they find any issues on the chain of title, they will resolve them before closing.

They will also research any judgments, liens, outstanding mortgages, or unpaid taxes on the property.

The title company will then prepare a report (abstract of title), revealing all the research findings. This document will validate the title of the property.

Title insurance is issued to protect the lender and new owner against any lawsuits or claims undetected on the original title search. The lender will require a title insurance policy.

If you are a cash buyer, it would be your decision to purchase title insurance. Although, if you are purchasing a home with cash it is highly recommended that you purchase the title insurance policy.

APPRAISER

An appraiser will visit the home to prepare an opinion of value for the lender. Do not confuse the appraisal with a home inspection but, the appraiser may note any safety issues that are apparent to them. Requirements for an appraiser and a home inspector are different. An appraisal is not a substitute for a home inspection.

An appraiser will prepare a report called an appraisal that will provide their opinion of value based on several factors.

• Location
• Structural Construction
• Age
• Bedrooms
• Bathrooms
• Condition
• Square Footage
• Recent Neighborhood Home Sales

Providing a fair and unbiased assessment of the property can be accomplished by randomly assigning appraiser through a third party.

The cost of the appraisal is an expense the buyer will pay. This is a requirement of the buyer’s lender.

In the event that the home does not appraise for the amount of the sales price, it can trigger a negotiation between the buyer and the seller. If both parties come to an agreement acceptable to the lender, the sale will be completed.

UNDERWRITER

The underwriter works for the lender. Their role is to review the buyer’s information and the appraiser’s opinion of value to determine if the mortgage can be issued for the purchase price agreed upon. The underwriter will evaluate that granting the mortgage to the buyer is a sound investment for the lender.

An underwriter will look at several different areas to determine any risk of the buyer defaulting.

• Credit and payment history
• Income and assets of the buyer
• Downpayment
• Appraised home value

The underwriter may need to request additional information to clarify any uncertainties that arise to be sure lending the money to the buyer is a solid investment for the bank/lender.

The last hurdle in the process of buying or selling a home is clearing underwriting. The type of loan, buyer’s financial situation, title issues, survey issues, and missing paperwork will all affect the time the underwriter will need to complete the process.

Once they have completed their review, the Underwriter will issue the loan a “Clear to Close” status!

TEAMWORK

Buying or selling a home in the Brooklyn Real Estate market involves many parties and this doesn’t include assistants and others within these companies who help. It really does take a village to pull all the pieces of buying or selling a home together.

That is why it is so important to hire the right Realtor® to work for you, whether you are buying or selling a home. Coordinating all these parties takes a thorough understanding of the sale process and experience in the local market.

Contact me, Charles D’Alessandro, your Brooklyn Real Estate Agent with Fillmore Real Estate. As a Brooklyn real estate agent with over 30 years of experience, I can help both buyers and sellers coordinate all the details.

In the event our office is shut down we are always committed to your safety during the COVID-19 health crisis in compliance with the State of New York public health policies. I can be reached by phone at (718) 253-9500 ext. 1901 or by email at [email protected].

Real estate trends for 2016 are positive. And in my opinion, number 10 is the best trend for you!

The top 10 real estate trends of special interest to keep your eye on this year are:

1. People Prefer 18-Hour Cities Over 24-Hour Cities
   18-hour cities such as Nashville, San Antonio, Portland, Austin and Raleigh-Durham are “the place to live” for:

• Being hip, cool or trendy
• Having a lower cost of living
• How easy it is to stay connected to the city from a far distance
• Being affordable

2. Parents of Millennials Will Move to the Suburbs

Baby Boomers, or the Gen-Y generation, expect that in five years they will live in single-family detached homes in the suburbs. Wikipedia defines this type of home as a single-detached dwelling, single-family residence (SFR) or separate house. It is a free-standing residential building defined in opposition to a multi-family residential dwelling. Gen-Y will look for homes in suburbs with transportation options to connect them to all that big cities offer. Suburbs that connect Baby Boomers to urban center activities will continue to grow in popularity.

3. Office Space Will Keep Shrinking

Available office space is decreasing while rent is increasing. This combination will change the average square footage for office workers. An average 253 square feet in 2000 is predicted to shrink to 138 square feet by 2020.

4. People Will Experiment with New Housing Options

Homeownership decreased from 70 percent before the Great Recession to 63.5 percent in the spring of 2015 for all age groups. This drop in homeownership has stirred up a demand for rental housing and microhousing.

5. Parking Lots Will Change Into Better Pieces of Real Estate

The way people get around is changing. Many are choosing not to own a car and are trending toward ride-sharing (carpooling). This trend is eliminating the need for parking lots. City developers and officials are investigating how to put parking lots to better use.

6. More Are Investing in Infrastructure

Buildings, roads and power supplies needed for operation or enterprise in America have been crumbling for years. This has been in the news for a while now. Since the need for new mass transit, better roads and highways and improved aircraft and rail transport facilities has not been met yet, interest in new infrastructure funding, public-private partnerships and real estate investment trusts (REITs) is growing.

7. Urban Farms and Rooftop Gardens Are On the Rise

Urban farms and rooftop gardens are growing in number. There’s one called Brooklyn Grange here in New York, large urban farm operations in Detroit, and a vertical farm in Newark, New Jersey will be completed soon.

8. The Need for Niche Lenders is Increasing

The need for lenders to lend to specialized corners of the market is increasing this year. Many developers turn to larger banks to lend them money for bigger projects that require more lead-time and more capital. But larger banks are constrained by recent regulations allowing smaller banks and community lenders to fill the gaps.

9. S. Real Estate Capital Isn’t Slowing Down This Year

The increased volume of real estate capital for 2016 is expected to be equal to or greater than it was in 2015. The real estate landscape will change because real estate capital isn’t slowing down this year.

10. Human Touch Is Just As Important As Ever

In spite of the reliance on computers and technology, the good old-fashioned human touch is just as important as ever. People still need and desire intuition and authenticity of real estate professionals’ personal understanding of the market.

Are you interested in and following the real estate trends for 2016? I have over 30 years of experience to help buyers find new housing options, available lenders and more. Call Charles D’Alessandro, your Brooklyn real estate agent with Fillmore Real Estate at (718) 253-9600 ext. 206 or email, [email protected] today. With a personal understanding of the market here in Brooklyn, I’ll help you find just what you’re looking for.

There’s a new Brooklyn trend in town: new development townhomes. From Red Hook to Williamsburg, developers are looking to fit in and are going back to basics. Instead of residential Manhattan-like glass condo towers, developers are offering classic townhomes that reflect the past and blend in well.

In addition to buyer demand, there are 2 reasons for the sudden surge in the new Brooklyn trend:

1. zoning restrictions
2. taxes

Most buyers who come to Brooklyn see themselves living in brownstones and townhomes. They want to buy brand-new townhomes that reflect the past but are updated for the future with modern touches inside. This new Brooklyn trend is very appealing to today’s buyers.

5 new townhome developments that are part of the new Brooklyn trend:

Seven on State

• Located on State Street in the Boerum Hill neighborhood of Brooklyn
• Neighbors Downtown Brooklyn
• Classic, neo-Georgian style exterior, modern interior

State+Bond

• Located down the street from Seven on State development
• 5 modern design townhouses
• Range in price from $4.49 million to $4.85 million

King & Sullivan Red Hook Townhouses

• Located in south Brooklyn
• 22 modern design townhomes
• All 22 townhomes include 5 different types of facades – Corten, Arches, Steel, Brick and Terra

2 Strong Place

• Located in Cobble Hill
• 3 classic townhomes
• Reflect the architecture of the leafy, brownstone and townhome-dotted neighborhood

N. 3^rd Street

• Located on the block between Bedford Avenue and Berry Street in Williamsburg
• Modernized townhomes
• Prices range between $1.9 million and $2.24 million

Are you interested in the new Brooklyn trend? Contact Charles D’Alessandro, your Brooklyn real estate agent with Fillmore Real Estate. Call (718) 253-9600 ext. 206 or email, [email protected] for a personal tour. Tour these classic brownstones and townhomes that reflect the past.

Source: http://rew-online.com/2015/11/20/new-development-townhomes-trending-in-neighborhoods-across-brooklyn/