Making an Offer to Buy a House? Be Sure to Include These 2 Clauses

by Christy Bieber | Updated July 19, 2021 - First published on April 16, 2021

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A man and woman standing in an empty living room and looking at blueprints of the house.

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You need to protect your financial interests when you're buying a home.

When you've found the perfect home, you'll have to submit a formal written offer to the seller.

When you do, there are two key contract terms that you will absolutely want to be sure are included in your offer. You'll want to make the purchase contingent on both a satisfactory inspection and on a home appraisal that shows the home is worth at least as much as you're paying for it.

Why do you need inspection and appraisal contingency clauses?

If you submit an offer to buy a home and a seller accepts, you're entering into a legally binding contract.

Your contract will likely require you to make an earnest money deposit. This means depositing a sum of money with an escrow agent (a lawyer or title company that handles property closings and holds onto the money).

If you do not go through with the terms of the contract and purchase the home, you risk losing that deposit. To avoid this, you don't want to commit to buying a home unless you're confident the decision is a good one and that you'll be able to get financing to complete the transaction. That's why inspection and appraisal contingency clauses are so important.

See, when you make an offer on a house contingent on a satisfactory inspection and appraisal, these become conditions of the offer. The conditions must be fulfilled, or else you don't have to complete your purchase and you can get your deposit back.

How inspection and appraisal contingency clauses work

When you make your purchase of a home contingent on a satisfactory inspection, you'll have a certain number of days to have professional inspectors come to the home. The specific timeline depends upon what you specify in the contract.

Inspectors will conduct a careful assessment of the property. The goal is to identify any possible problems. If issues turn up, you'll have the option to negotiate with the seller to either fix them or reduce the price so you can pay for repairs yourself. If you can't come to a satisfactory agreement with the seller, you can back out of the contract and get your deposit back. If you come to an arrangement, you can change the contract terms based on what you decide.

When you make your purchase contingent on a satisfactory appraisal, a licensed appraiser will come to the home, assess its condition, and compare it to similar properties that sold recently in the area. The goal is to assess the home's fair market value. Your mortgage lender will probably require an appraisal to make sure the home is sufficient collateral for the home loan (which means it is worth enough to guarantee the mortgage). And you'll also want to know that you aren't overpaying, in case you end up having to sell the home later.

In other words, these two clauses protect you from entering into a bad deal. So be sure not to leave them out of any offer you make -- otherwise, you could come to regret entering into a real estate transaction that leads you to big financial losses in the end.

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