Tag Archives: contingencies

The Cost of Changing Your Mind

What is Earnest Money?

Earnest money is the price you pay to take a property off the market. If you’re a renter, it’s customary to offer one month’s rent as earnest money. If you’re buying a home in Chicago, the amount varies, but can be as high as 10% of the purchase price for a new construction home.

In the event that the deal goes through, it is applied to your purchase price. For home buyers, this means that the earnest money may well be more than your down payment. You’ll get it back at closing.

"Give us the earnest money or you'll never see another open house!"

“Give us the earnest money or you’ll never see another open house!”

If the deal falls through, you lose the earnest money. This means that you’d better be really sure that you want to commit to the place before you put that money down. (In fact, that’s why buyers customarily request a chance for an attorney to review their offer before they put down all of their earnest money.)

Basically, it’s a ransom that you pay while the seller or landlord holds hostage your ability to shop around for other properties. By taking a property off the market, they’re in turn forfeiting the right to potential better offers that might come along while they wait for your deal to close. (more…)

Assessing the Association

I was recently talking with a first time buyer about the assorted contingencies that she’ll have to fall back on if she puts in an offer on a property. For those of you not accustomed to real estate lingo, contingencies can be thought of as “escape routes” – they’re reasons you can use to get out of your purchase contract. If you’re working off of a standard Chicago area housing contract to purchase a condo, you’ll usually be able to use the following reasons to get out of your purchase contract:

  • Inspection contingency (Major problems with the property found by a licensed home inspector)
  • Lawyer review contingency (Problems in the purchase contract language)
  • Home sale contingency (If you have to sell your current home first before you can buy a new one)
  • Loan contingency (No loan, no property.)
  • Condo association contingency (Problems with the bylaws or financial status of the condo association.)

Plane image adapted from a United Airlines safety card. Thank you for flying CondoAir.

I mentioned that buyers often do not see the bylaws, financial statements and meeting minutes of a condo association until just a few days before closing.

“Isn’t that really late in the game to be finding out that kind of information?” she asked. “Shouldn’t you know the financial health of the association before you make an offer?”

(more…)