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When you buy and sell real estate in Florida, your real estate agent probably uses the FAR/BAR “as is” contract. The contract has five contingencies, or exceptions, that protect the buyer. A buyer or seller can also add their own contingencies. To have a valid contract, the buyer must put down “consideration,” often referred to as good faith money. That deposit is generally applied to the principal of the home and is almost always non-refundable. When you make a deposit on a house, the seller takes it off the market. The non-refundable deposit reimburses the seller for their potential issues if the buyer changes their mind and backs out. The contingencies or exceptions allow the buyer to back out when they cannot close the deal through no fault of their own.
The most popular contingency is the financing contingency. While a buyer might have a pre-approval, the loan must still go through underwriting, which can take 30 or more days. If the lender finds something that causes it to deny the loan, the buyer can back out of the contract without penalty. The financing contingency allows the buyer and seller to work on the contract while the lender is underwriting the loan.
Every buyer should have a professional inspector do a thorough inspection of the home for defects. This is part of the buyer’s due diligence to ensure that they are not buying a lemon and to ensure that the seller disclosed everything properly. The buyer may back out of the contract if they find one or more defects in the property such as flooding, structure integrity, termites, hazardous chemicals on the property and more. The buyer also has an option to ask the seller to cure the defects or might ask the seller for a decrease in the home price in exchange for the buyer to cure the defects.
In most cases, sellers list their property for what the real estate agent believes that it will appraise for, which is based on comparisons of like properties in the area. However, if a seller does not disclose defects or the seller insists on listing the property for a higher amount, the lender might not finance the property at that price. The parties have a few choices: The buyer can pay the difference in cash; the seller can reduce the price; or the buyer can back out of the contract.
This contingency is not as common as the financing, appraisal and inspection exceptions. If the seller agrees, the buyer has a certain amount of time to sell their current home. If the buyer cannot sell in time, they have the right to back out of the contract if the seller agrees to the house sale contingency. This contingency also allows the seller to back out of the contract if the buyer does not get enough money for their house when the buyer planned on using the funds from the sale of the current home for the purchase of the new home.
This contingency is also less common. If the seller is leasing the property, they must produce a copy of the lease. If not, the buyer can back out of the contract. It is common for a buyer to buy a home only to find out that someone else is living there, which means the buyer has no place to go once the deal closes.
