Why home buyers need escape clauses
Buying a home is one of the biggest financial decisions most people will ever make. Your nest egg – the money you’ve worked so hard to save up – is on the line. That’s why home buyers must protect themselves by making sure their purchase agreements contain escape clauses.
What exactly are escape clauses? They are provisions written into contracts that allow either the buyer or seller to walk away from the deal relatively easily and without major penalties if certain conditions aren’t met. For home buyers, common escape clauses include inspection contingencies, appraisal contingencies, and financing contingencies.
Let’s look at each of these in more detail:
Inspection contingencies
An inspection contingency gives you the right as the buyer to have the home thoroughly inspected and to cancel the contract if issues are found that you aren’t willing to take on. Without this clause, you could be stuck buying a money pit riddled with defects, repairs, and safety hazards. That’s a huge risk to take with your hard-earned nest egg. A good inspection contingency will give you ample time to get an inspection done and review the results.
Additional reading: Home Protection Scheme (HPS)
Appraisal contingencies
You must add an appraisal contingency too. This allows you to back out and get your earnest money deposit returned if the home appraises for less than the agreed-upon purchase price. Without this, you could end up overpaying by tens of thousands of dollars or more. An appraisal contingency protects you from grossly overpaying.
Financing contingencies
Lastly, don’t forget the financing contingency. This gives you the ability to cancel if you’re unable to secure a loan under the agreed-upon terms. Rates and regulations change frequently these days, so locking in financing can’t be guaranteed. Without this clause, you could lose your deposit and have no home if your financing falls through.
The bottom line is that home buying is a risky business, especially in today’s fast-moving market. Don’t gamble your nest egg on a purchase without escape clauses built into the contract. Lean on your experienced real estate agent to make sure these contingencies are added and worded correctly to fully protect your interests as the buyer. An ounce of prevention is worth a pound of cure.
