Monday, 5th of October 2009 at 02:54:13 PMWe’re in a strange market, or more like a conservative market. The top two reasons a contract is being cancelled right now is either failure to get a loan or failure of the property to appraise for the purchase price. Of course I am discounting the short sale cases that have other reasons for getting cancelled.
Built into the typical Arizona Purchase Contract are two contingencies that address this, Loan Contingency and Appraisal Contingency.
Loan Contingency
If after every reasonable attempt to secure a loan for the property, you are unable to find someone that will give you the loan that you want and described in the offer. You can cancel the contract and received your earnest money back.
The Earnest Money is the money you gave to the seller for consideration of the offer and asking them to remove the property from being sold to another party.
Appraisal Contingency
This clause says that if the appraisal is for less then the agreed upon price, you (the buyer) can cancel the contract at this time without penalty. Often the buyer and the seller will try to work this situation out as much as possible, but I have had offers fall apart based on this contingency.
In today’s market, this has become all too important, as outlined in this Washington Post article.
Time is of the Essence
This is a motto of Real Estate agents everywhere. The idea is to work as quickly as possible to do all the work and take care of problems so not to cause problems later on. In realty, if you know that you will not get financing, you shouldn’t wait to the last minute to cancel the contract, you should notify the buyer as soon as possible of potential problems. This will also help later on if something can be worked out.
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