Your Colorado Springs Life & Home

Contingencies & The Fine Print That Protects Your Biggest Investment

• Lori Thompson • Episode 6

Share episode

 How Do Contingencies Work In A Real Estate Contract?

The safety nets that protect your real estate transaction deserve more attention than they get. Those little clauses tucked into your contract—contingencies—can be the difference between a smooth closing and a financial disaster.

Real estate veteran Lori Thompson breaks down the power of contingencies with practical wisdom and straight talk. "When you jump out of an airplane, I always recommend that you pull the little ring over your left breast pocket," she quips, explaining why home inspection contingencies should never be waived, even for brand-new construction. From discovery of grout-clogged drains to missing insulation between garages and living spaces, professional inspections catch what the building department might miss during brief site visits.

Home sale contingencies create a delicate domino effect where one transaction must complete before another can proceed. Lori walks through how "first right of refusal" clauses work and why they're becoming more common again in today's shifting market. Meanwhile, financing contingencies protect buyers through the underwriting process—where seemingly innocent decisions like buying new appliances or changing jobs can derail your mortgage approval at the last minute. "Don't buy a two-dollar toothbrush," Lori warns, only half-joking about preserving your credit status before closing.

Insurance contingencies have taken on new importance as rates continue climbing nationwide, significantly impacting monthly payments. Throughout it all, communication between all parties remains the linchpin of successful contingent transactions. Whether you're a first-time homebuyer or seasoned investor, understanding these protections helps you navigate the complexities of real estate with confidence. Ready to talk contingencies for your next move? Call Lori directly at 719-332-1807—yes, she really answers her phone.

To learn more about RE/MAX Properties Inc. visit:
https://www.LoriThompson.REMAX.com
RE/MAX Properties Inc.
Colorado Springs
719-332-1807

Speaker 1:

Welcome to your Colorado Springs life and home, where real estate meets real talk and maybe a little too much coffee. Hosted by REMAX Properties, licensed realtor, broker and top producer Lori Thompson, a local legend who's been helping military families and civilians buy and sell homes for over 40 years. Whether you're PCSing, upsizing, downsizing or just daydreaming, lori's got you covered. Why? Because she's your lifetime realtor and she actually answers her phone. Imagine that.

Speaker 2:

Contingencies might sound like legal jargon, but they're actually your safety net in a real estate deal. In this episode, lori Thompson explains how these clauses protect buyers and sellers and why understanding them can make or break your transaction. Welcome back everyone. Co-host and producer back in the studio with Remax Properties. Licensed realtor and broker, lori Thompson. How's it going? Oh, pretty good. How are you doing? Doing quite well. So today we're diving into the fine print that really matters contingencies and how they keep your clients covered from contract to close. How do contingencies work in a real estate contract?

Speaker 3:

Well, first of all, there's almost no contract that doesn't have some form of contingency. Let's even take a cash offer, that's still going to be contingent upon title review or verification of funds. Most of the time when people hear contingency, they think of a home sale contingency, which I'll cover first, and then I'll get into the more regular contingencies that every contract has. With a home sale contingency, you found a house you want to buy and a lot of people really do want to go doorstep to doorstep and sometimes that's a little bit challenging, but they'll write an offer contingent upon the sale or the closing of their existing home. I have one going on right now of their existing home.

Speaker 3:

I have one going on right now, and it's very normal to have what's called a first right of refusal come back at you where they say okay, we will accept your offer contingent upon the sale or closing of your current home. However, if we get another offer that we like, you'll have 48 hours to remove the contingency on the sale of your home Could be 24, 48, 72 hours and if you cannot remove that contingency, we have the right to terminate your offer, return your earnest money and move forward with the other offer. And so that's always. You know that's pretty normal to have some type of a first right of refusal. Usually it's a little less likely if the house that you're selling is already under contract, but the one I have going on right now. Their house was under contract, the people accepted their offer, then the people buying their house backed out and so now they have a new offer and we're starting over and they did a first right of refusal, which I understood. So that's the only tricky part right there is making sure. Think of it like a stack of dominoes and one has to fall before the other one can.

Speaker 3:

The other types of really important contingencies that I would never want to see a buyer waive is a contingency upon a home inspection, and sometimes I have my clients they say do I have to do an inspection? And I always tell them when you jump out of an airplane I always recommend that you pull the little ring over your left breast pocket and I strongly recommend you get a home inspection Because I would rather see them have the home thoroughly inspected than to waive inspection and end up with unexpected repairs. So a home inspection contingency is very critical. Other contingencies that are standard if you're getting new financing can be appraisal, loan approval, and so each state has a different contract, but the Colorado standard contract is more protective of the buyer. By the way, if you hear unusual squeaks, I do have a contractor doing some work on the house, so those squeaks are not small animals being tortured or anything like that.

Speaker 2:

Lori does not torture Louis.

Speaker 3:

No, I tend to restrain them and, yes, and they become my new best friends.

Speaker 2:

So yeah, and even realtors need contractors every once in a while, oh yes, oh yes. So you spoke about inspection contingencies and I tell people all the time, even brand new construction needs inspections. Yes, oh yes, because you'll be surprised.

Speaker 3:

And I tell people all the time even brand new construction needs inspections. Yes, because you'll be surprised. I had a shower drain plugged on brand new construction because one of the contractors let the grout go down the drain and it hardened. Another one where they did the infrared photography. Someone had missed insulation between the garage and the house. Someone had missed insulation between the garage and the house. So, even brand new construction, it may have been signed off by the building department, but the building department, each field is only there for a short period of time and an inspector is there for hours checking everything out thoroughly.

Speaker 2:

I tell people, an inspector is trained to look at everything from a faulty foundation to a loose doorknob and everything in between. So if there are a lot of red flags or things that come up in an inspection, is the buyer able to walk away.

Speaker 3:

The way our contract is structured. Yes, they have the right to terminate and I always tell them that it's not necessarily to make. Let's say, if it's an existing home, the goal is not to make the seller do everything. The goal is to look for health and safety and if there's something you don't feel like you can do, it becomes a negotiating period of time. If you cannot reach an agreement, the buyer would have the right to withdraw the request or to terminate. Just let the contract terminate. So I always encourage a sewer scope, radon testing, have the roof checked, the electrical, the important items that can be health or safety. But it really is up to the buyer.

Speaker 2:

I understand that. I have had friends tell me home ownership isn't worth it because you get into this house and you have all these things that you need to fix and I'm like that's not. That doesn't speak to home ownership. That speaks to either a lack of explanation of the inspection or just buying a home that's just a little bit older, that needs a little more care. But home ownership is always a great investment. So you talked about financing contingencies. How does that protect the buyer?

Speaker 3:

In that one. Just because you have a pre-approval letter, it still hasn't been underwritten. And oh, there have been things where people quit their job the day before closing Underwriter's tip. Or buy a car. Or buy a car oh yes, the car buying is even a washer and dryer. I always tell my clients now that you're under contract, don't do anything, don't run up, don't ring up credit card debt, don't go shop, don't buy a two dollar toothbrush. If you buy a car, then you won't have a garage to put it in because you've just thrown everything into disarray.

Speaker 3:

So, please wait till a few days after closing to buy the car or the new appliances or the gorgeous rugs that you want, and so the key is you have to be underwritten and your basic numbers have to stay the same, have to stay the same. So if someone does lose a job, then if you have the contingency on the final loan approval or the clear to close by a specific date, then you can preserve your earnest money, and so that's why it's really important. Another contingency we've seen a lot of and I think this is going to be not just Colorado but nationwide insurance rates have really gone up. They impact your final payment, so people will get insurance quotes and they're surprised at how much of an impact it could have on your mortgage payment. But it's good to have we have an insurance deadline as well, so people can know in advance how much is my homeowner's insurance and how does it impact my payment.

Speaker 2:

Now we know that with the first contingency you spoke of, with having to sell, the buyer having to have their home sold first. Just in general, how do contingencies affect the timeline of getting to the closing table?

Speaker 3:

You have to factor in. If the house that you're selling is not yet under contract, you have to guess what the closing date will be Right. If your house is under contract, then you try to time the new purchase in line with that, and then a lot of sellers may not want to move out till they know they have a for sure deal. So it gets a little bit tricky and you have to have really good communication with the other broker. That is so important. So you have to communicate with the broker who has the house listed, just in case it's in another state, and you also have to communicate with the broker on the house they're buying.

Speaker 2:

Yes, a lot of moving parts and coordination, because closing dates seem to be fluid even outside of the contingencies, like that.

Speaker 3:

Oh yeah, a few years ago people wouldn't even consider a contingency offer because the market was too hot. Yes, right now they're coming back into vogue and you just have to be prepared that it can all go wonderfully or it could all pretty much blow up in your face. So as long as you're prepared for both, I had one person tell me gosh, you're kind of negative. And I said not really. I said, but I always have an obligation to let you know the worst thing that can happen.

Speaker 2:

Absolutely, and you've seen it all and you know that there are definitely so many different stages of a home buying process where things can get a little sticky. We definitely appreciate you breaking that down, lori. Contingencies might not be glamorous, but they sure are powerful. Appreciate your insight. Yes, we'll see you next time on your Colorado Springs Life and Home. All right.

Speaker 1:

That's a wrap for this episode of your colorado springs life and home. Got questions, need advice, just want to talk about interest rates and granite countertops? Call or text lori at 719-332-1807 yes, she'll really respond or visit lorithompsonremaxcom to get started with your lifetime realtor, because when it comes to Colorado real estate, lori doesn't just know the market, she is the market.