Always Have a Back-Out Plan: Contingencies You Must Have

When dealing with appraisals, loans and flaws in the condition of the house you're about to buy, having a contingency plan allows you to back out of the purchase with no penalty.

DesignSensesHear-Pedersen8

By: Tara-Nicholle Nelson

Related To:

When you're buying a home, Plan A is always to buy the home on the terms in the original contract. Plan B is to buy the home after renegotiating some of the terms. Plan C is the contingency plan: if there is an irresolvable flaw in the condition of the home, the home doesn't appraise for the purchase price, or your lender refuses to fund your loan for whatever reason, you can back out of the transaction with no penalty (other than the money you've spent on inspections) so long as you have the appropriate contingencies in place. Remember, contingency = the right to bail. 

When you're in a hot seller's market, or there are multiple offers on a property, you might be pressured to make an offer with no contingencies, or one with no appraisal or loan contingency. DON'T DO IT! Personally, I wouldn't spend more than about $50 at a store that didn't have a 30-day return policy. It is insane to even consider having no back-out plan on a purchase in the hundreds of thousands of dollars! This is way too big a purchase to be without an escape route, at least until your due diligence into the condition of the property is completed.

The results of your home inspections will help you decide whether you need to bail out of a home purchase. For the most part, properties that look very well maintained have been very well maintained. People who tend to every nook and cranny of their homes and keep things well dusted and manicured, also often maintain their rain gutters and roofs well. Over the last decade, though, a wave of buying and rehabbing properties strictly for profit (not to live in) has swept our nation. Investors "fix" properties with widely varying degrees of attention to the fundamentals prior to "flipping" them. In an effort to maximize profit, some flippers pay all their attention to cosmetic detail, and very little to the structural integrity of the home. Others literally tend to everything from the ground up, so don't dismiss these sorts of properties out of hand either. My point is that with any property, but especially a fix-and-flip, looks can be deceiving.

Next Up

5 Types of Neighbors and How to Handle Them

You may love your house, but getting stuck with bad neighbors may have you thinking about putting up a for-sale sign. Here are some tips on dealing with rude, sloppy or nosy neighbors, and even those mean ones with spite houses.

Scheduling Your Relocation

If you can postpone your move, you could save some major cash.

The Skinny on the Short Sale

How to get a short sale when you're facing foreclosure on a house.

Short Sale Rules: What You Need to Know

A short sale occurs when a property is sold for less than what is owed on the mortgage with the lender's approval. Learn the advantages and disadvantages of this type of transaction for the seller and the buyer.

What Foreclosure Means and How to Stop It From Happening

Learn about the various steps in the foreclosure process and ways you can avoid losing your home.

Saving Money While Paying for a Home

You may be financially "exhausted" from saving for your home purchase, but now's actually a great time to keep saving.

Moving Day Tips: How to Pack for a Move

These 10 packing tips will help you move more efficiently and smoothly.

Did I Accept a Bad Offer on My Home?

Worried you accepted a bad offer for your home? Let real estate expert soothe your fears.

How to Quickly Sell Your Home When Threatened With Foreclosure

Get tips and advice on how to sell your home fast.

How to Deal With Your Lender When Facing Foreclosure

In the foreclosure world, "workout" has nothing to do with the elliptical trainer. It's about cutting a deal with your lender to stop the foreclosure process.

Go Shopping

Get product recommendations from HGTV editors, plus can’t-miss sales and deals.

On TV

Down Home Fab

1pm | 12c

House Hunters

5:30pm | 4:30c

House Hunters

6:30pm | 5:30c

House Hunters

7:30pm | 6:30c
On Tonight
On Tonight

House Hunters

8pm | 7c

House Hunters

8:30pm | 7:30c

House Hunters

9:30pm | 8:30c

House Hunters

10pm | 9c

House Hunters

10:30pm | 9:30c

House Hunters

11pm | 10c

House Hunters

11:30pm | 10:30c

House Hunters

12am | 11c

House Hunters

12:30am | 11:30c

House Hunters

1am | 12c

House Hunters

1:30am | 12:30c

House Hunters

2:30am | 1:30c

House Hunters

3:30am | 2:30c

Follow Us Everywhere

Join the party! Don't miss HGTV in your favorite social media feeds.