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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.

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.

Related: How to Have A Successful Real Estate Settlement

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


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