Finding a home in a better location, with a better layout, with more space or in better condition can be exciting. Unfortunately, however, some people agree to buy new houses at prices too expensive for those new homebuyers.
If a prospective homebuyer wants to buy a home based upon any factual presumptions’ occurrences before closing, the occurrences of those factual presumptions should be included in the purchase agreement for the new home as “contingencies” or “ways to be released from the contract” if the presumptions do occur.
For instance, I may wish to purchase a new house, but it will require that my current home sell for a certain price in order for me to purchase the new house. I may have a lot of confidence that my “old house” will sell for the required price, and I may have verbal commitments to buy my old house for the certain, required price. However, if I am smart, I will insist that the sale of my old house for at least the required price be included in my contract for the new house that I am attempting to buy. In other words, “If I do not sell my current house for $175,000 by July 1, 2022, I do not have to purchase this new house for $250,000.”
Another, very similar contingency that smart buyers will include in the purchase contract for a new house is the new house’s appraisal value.
For example, if I have saved $40,000, and my bank says that it will loan me 80% of the value of a new home, my new house budget should logically be $200,000. Obviously, that $200,000 budget relies upon an appraisal of the new house of $200,000.
In other words, I might sign a contract to purchase a new home for $200,000 based upon the information in the last paragraph. But the new house may appraise for only $150,000, so the bank will loan me $120,000 on top of my $40,000 savings. However, the loan and savings total will only be $180,000—not $200,000, and I will be unable to buy the new house.
In this circumstance, unless I can borrow more or sell something to make up the difference, the sellers of my new house can sell the house to someone else. Let us say that the sellers eventually sell the house for $160,000. Believe it or not, I will then have to pay the sellers the $40,000 of extra money that the sellers were promised in the contract I signed. The fact that I only paid a $1,000 earnest money deposit or any other reason does not change the legal conclusion that I have to pay $40,000 for my lack of sophistication and naivete.
Avoid problems by ensuring that the house purchase contract include an “out” of the purchase contract, if any necessary fact, like the sale of another house for a certain price or the appraisal of the new house for a certain price, ultimately does not come true.
