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Real Estate Terminology – What Are Contingencies?

Real Estate Terminology – What Are Contingencies?

What Are Contingencies?

When writing an offer on a home purchase, the buyer will write in contingencies, or conditions of the offer. A contingency is a provision in a real estate contract that specifies the contract would cease to exist upon the occurrence of a certain event.

Contingencies protect the buyer in case theycontingencies to a contract cannot perform or choose not to perform on the offer to buy the home. Some contingencies also protect the seller. There are several contingencies that are common.


  • Financing Contingency:  Unless the buyer is paying cash for a home, the financing contingency will insure that if the buyer gets turned down for any reason, they will be released from the contract.
  • Appraisal Contingency:  If the home appraises for less than the contracted price, then the lender will not agree to lend that amount for the home. They have to be assured that if the buyer ever defaults on the loan, they will be able to re-sell the home for the amount loaned on it. In this case, the buyer and seller can renegotiate and work out an agreement to handle the difference. Appraisals can be challenged, if buyers and sellers are patient.If the appraisal on the home is higher than the purchase price, this can be good for the buyer. The loan is not in jeopardy. But not always so good for the seller.
  • Home to Sell Contingency:  If a buyer still has to settle or sell their previous home, they can write in a home-to-sell contingency, or home-to-settle contingency. In a competitive buyers’ market, it is not to the buyer’s advantage to have a home to sell. In a market with high inventory and fewer buyers, it is more feasible.
  • Home Inspection Contingency:  It is always the buyers right and choice to have a home inspection, and it’s highly recommended. If they discover a major flaw in the home that they just can’t live with, they can void the contract. If they find issues that fall under paragraph 21 of the MAR contract, the seller must fix them. (more on paragraph 21 later)
  • Other Inspection Contingencies:  Septic, well, termite or pest inspection, radon, lead paint, and various other inspections can be done, depending on the type of home.
  • HOA Contingency:  The buyer has the right to inspect the HOA documents or condominium documents, and can void after a certain number of days (negotiated in the contract). The buyer can usually void the contract unconditionally, or for any reason if they don’t like what they read in the HOA rules.

Any time that inspections uncover issues, the buyer and seller can renegotiate. Contingencies are a part of real estate contracts and so are renegotiations — but only in limited areas and according to the contract. Some buyers and sellers never fully read the contract — be sure to read yours. Be sure to ask your real estate agent any questions you come up with… that’s what they’re here for.

Documentation for Your Mortgage Lender

Gather Your Documentation

Before you make a loan application, you’ll need to gather up some documentation for your lender. Each lender has their list of needed items, but most include these basic things:

  • Your landlord’s ( for the last 2 years) contact information.
  • W-2’s for each one on the mortgage.
  • Recent paystubs for each borrower
  • The last 2 years tax returns for each borrower
  • If you are self-employed, an up-to-date Profit & Loss statement with the 2 previous years’ tax returns
  • Information on all outstanding loans, including credit cards
  • The last 3 months’ bank statements for all bank accounts
  • If you filed Bankruptcy within the last 7 years: You’ll need discharge documents, a written explanation of why you filed bankruptcy and proof of clean credit after filing.

Come Clean from the Beginning

Sometimes buyers try to withhold financial information from the lender, or forget about information that should be disclosed. With today’s record-keeping, it’s highly likely that the information is going to surface during the loan process, so it’s really best to bring everything to the lender. If you don’t and some damaging information comes out during the process, it just creates a lot of drama along the way, and can have a negative effect on the loan process. Better to know upfront. The sooner the problems are known, the sooner you can make the necessary corrections.

Two Main Players in the Loan Process

There are basically two parts to the loan process, the loan officer and the underwriter. Kind of a Yin and Yang. The loan officer is the salesman. He is “packaging” you so that you look your best to the underwriter. The underwriter is trying to find anything about your file that would warrant his denial of your loan. The checks and balances of this system work to make sure both parties, the bank and the borrower, are getting the best consideration.

Before you begin the house hunting process, make sure to keep a close eye on your credit score. Credit is now more important than ever in getting the loan and getting the best rates.

Contact Us for our list of preferred Frederick Md lenders.

Chris Highland

Frederick Real Estate Online
The Highland Group

Frederick Md Homes for Sale

Settlement Procedures in Maryland

Settlement Procedures in Maryland

What takes place during the settlement or closing?  Here are some definitions that will help explain the process.

Closing or Settlement – The house is sold when the buyer and seller have reached a “meeting of the minds” and the contract has been ratified, or all signatures are final.  The settlement, or closing, takes place when all money is transferred and the new title is transferred and the deed is signed.  In some states the process is “escrow”, where the money is transferred at a later date than the closing, sometimes referred to as a “dry settlement”. In Maryland there are only “wet settlements”, meaning the money must be transferred at the time of settlement.

Closing Procedure – The completion of two basic issues are required to go to settlement:

1. The requirements made in the real estate sales contract are fulfilled, The buyer’s Issues that need to be resolved:  The title, seller’s deed, any documents demonstrating the removal of liens and encumbrances, the survey, the results of any inspections,  and the termite inspection report. The seller’s Issues:  Receiving payment, compliance with contract requirements. and

2. The mortgage lender disburses the loan funds. The buyer, seller, their respective agents, and the closing agent or lawyer are usually at the closing.  The settlement should only take about 1 hour, in most cases.

Closing Statement – The Buyer and Seller should get a closing statement (HUD 1)  48 hours before the settlement so that they know all the charges that they will be responsible for.  The statement is an estimate, but should be very close to the exact amounts.  Buyers should bring a certified check with the amount owed.  Sometimes sellers will need to bring a certified check as well.

Closing Fees – There are several categories of fees:

1.  Broker’s commission:  paid by seller. Plus any Administration Fees.

2.  Closing Attorney’s fees.

3.  Transfer Tax:  Split 50/50, unless otherwise negotiated.  Maryland waives the first-time home buyer’s half of the fees.

4.  County Taxes

5.  Recording expenses. Deed preparation fee, title binder, courier fee, etc.

6.  Title expenses:  In Maryland the buyer orders a title search and a binder for title insurance.

7.  Loan Fees:

  • The loan origination fee is 1 to 2 % of the loan, paid by the buyer.
  • They may also have discount points to buy down the interest rate.
  • There are other survey fees,
  • appraisal fees,
  • Document fees,
  • Certification fees,
  • Credit Report charged to buyer,
  • Home owners insurance,
  • The lender should have given a “Good Faith Estimate” to the buyer when they made loan application.

8.  Insurance Reserves and Tax Reserves:  Most lenders require buyers to provide reserve funds or escrow accounts to pay for future real estate taxes and insurance.

9. Any unpaid or prepaid Items: HOA dues, utilities, fuel and water

Buyers: Before your lender gives you a good faith estimate, ask your lender for a ball-park estimate.

Sellers: Ask your agent for a seller’s net sheet for a ball-park estimate.

Frederick Real Estate Inventory: What It Means for Home Values

Frederick Real Estate Inventory: What It Means for Home Values

Frederick Real Estate Inventory is Rising…We’re Seeing Normal

The inventory of homes on the market in Frederick Md has been down around 650 to 700 during it’s lowest time in many years. In 2013 that was very low, in fact, about half a normal market. Buyers were having a difficult time finding a home that they really liked, and when they did, they were often contending with multiple offers. frederick real estate inventory

Yes, this was traditionally what we refer to as a “Sellers’ Market”, because the inventory and demand have created an absorption rate that is less than 4 months. (how long it would take to sell the present inventory)

This year, as inventory rises, the demand will be key in determining what happens to home values. Real Estate has always been largely affected by supply and demand, although not in the way that manufacturing is directly affected. In real estate, supply and demand is a LOCAL issue.

All Real Estate is Local

For instance, if there are new jobs, businesses and industry opening up in an area, there will be people moving in. Real Estate demand will be up. If local conditions are declining, people will not be moving up or moving out.

Even more than that, real estate is hyper-local. If the hospital has added on an entirely new wing with a new treatment center, let’s say a birthing wing, they will be hiring and people will be looking for nearby housing. These nearby neighborhoods might see prices on the upswing. On the other side of town, for instance, a neighborhood might be in decline, as too many homes go into foreclosure. This neighborhood would see price declines.

Good News for Buyers

Inventory is creeping up in the Frederick Md market in 2015. The number of homes on the market in summer of 2014 was very close to what has historically been considered a normal maket…1200 to 1300. That was after a low of 615, at the beginning of 2013.

As home values increase, more and more sellers are able to put their homes on the market. As the inventory increases, buyers will have more to choose from. Sellers will have more competition, as well.

Good News for Sellers

Many homeowners have wanted to… move-up, move-out, and move-away for a few years now, but have been under-water on their mortgages and unable to sell, except in a short sale situation, if they were experiencing a hardship. As the market picks up, more and more homeowners will be above water again, and we expect that “pent-up demand” for sellers as well as for buyers to take affect. Good news for sellers.


Average home values are increasing… buyers will be able to afford less as prices increase. Interest Rates are expected to increase as the economy picks up. Buyers will be able to afford less because their monthly mortgage payment will be higher. This is the see-saw of real estate.

For an in-depth look at Frederick real estate and surrounding areas, Read our monthly statistics posts in our Frederick Real Estate Market Statistics Category

buyers market or sellers market?

Contact Chris Highland for more local real estate info. 301-401-5119


Is This a Buyer’s or A Seller’s Real Estate Market?

Is This a Buyer’s or A Seller’s Real Estate Market?

Buyers or Sellers Market?  Real Estate Terminology

A Buyer’s Market:  In a real estate market with 7 or more months of inventory we consider the buyer to have more negotiating power. There are more houses on the market and buyer’s have more choices. We usually see depreciation. (from 2007 to 2011)

A Seller’s Market:  In a real estate market with 1 to 4 months of inventory we Real estate Marketsconsider the seller to have more negotiating power and we usually see home value appreciation. Buyers have more competition as there are fewer homes on the market. (from 2001 to 2006)

A Balanced Market: In a normal market with 5 to 6 months inventory the conditions are even. In late 2011 and 2012 we’ve seen a balanced real estate market in Frederick Maryland. Now that the demand is up and the inventory is down, we’re seeing the turn to a buyer’s market again.

Calculating Months of Inventory

The number of months of inventory means that if there were no more new listings, it would take X months to sell the homes currently on the market. We also use the term Absorption Rate, and also talk about the number of “Days on the Market”

When we calculate the months of inventory, we usually take the last 3 months into account. We can fairly determine that it will take X number of days to sell a home, on average. These calculations are important, because if we see a home linger on the market for more than the average time, we can assume that the price is too high, or the condition of the home is not good.

What Does this Have to Do with Buying or Selling?

Good Question! The explanation is found in Days on Market – How it Affects Real Estate. Knowing the average days on market in the area where you are buying or selling is very important in helping you determine an approximate asking or offering price on a home.  Read more.