Contingencies need to have time limits

Q: We put our house up for sale last week with a Realtor we think is pretty good. She told us to prepare for what she called a contingency, that our buyers would probably have to see if they could get a mortgage. Could we go on trying to sell our house while we wait to find out if the buyers work out? — P.R.

A: Buyers often make their written offer subject to contingencies. It means they’ll be legally bound to go through with the deal, but only if:

■ They can obtain a specific kind of mortgage loan for a specific amount of money at a specific rate of interest.

■ Their present house is sold.

■ They receive a satisfactory building inspector’s report.

■ An out-of-town spouse approves the deal.

■ Something else needs to happen.

If you accept an offer that contains one of these contingencies, ensure that it contains a time limit. You shouldn’t have to take your property off the market indefinitely with a contingency. An inspector’s report, for instance, shouldn’t take more than a week. The time limit, like all agreements, should be in writing in the contract itself.

It’s understandable that buyers shouldn’t be bound to a purchase if they can’t arrange financing. The contract should promise they’ll apply for a mortgage loan promptly. Sometimes, it may even specify they’ll apply at more than one lender if necessary.

Whether you should accept a contingency regarding the buyers selling their present home first depends on your circumstances: how promptly you need to sell and how long your place has been on the market. Some sellers simply refuse contingent offers; others find them reasonable. Just know that by accepting this particular contingency clause, you could be trading worry about the sale of your own property for worry about the sale of the buyers’, over which you’d have no control. Sometimes sellers who accept contingencies charge a higher price to make up for the uncertainty.

If there’s a contingency for the sale of the buyers’ house, you could be protected by an escape clause. This provision would let you continue showing your home during the contingency period. If you receive another offer you want to accept, you would notify the first buyers that they must remove the contingency and firm up their offer, or drop out (for a refund on their deposit). They’re typically allowed a few days to decide.

For starters, ask your listing agent for a blank copy of the purchase offer form her firm usually uses. Peruse fine print over before you’re faced with deciding about a specific offer.

Mortgage broker or mortgage banker?

Q: You mentioned mortgage brokers a few weeks ago. Are they the same as mortgage bankers? — D.E.

A: Mortgage bankers make loans on real estate, just as banks do. Mortgage brokers don’t make any loans. Their role is to bring lenders and borrowers together. If you have an unusual situation, they’re particularly useful because they usually keep current with the offerings of many different lenders.

Upgrade for sale

Q: I have a 2,500-square-foot, two-story house built in 1992. My concerns for resale are the original roof and slightly damaged vinyl flooring and Formica countertops in the kitchen. Does it make sense to replace and upgrade these things before listing, or should I let the new owners do it? — Anonymous

A: As always, local real-estate brokers can view your property. They know the market in your neighborhood. You’ll get better advice — for free — if you ask agents from a few different firms to come over and discuss the matter.

Suggestion for financing

Q: One of your readers recently asked bout financing an addition to their home. You suggested doing the Federal Housing Administration 203K refinance. I work for a mortgage company and we offer a great product that offers a short-term construction/rehab loan, which then converts to a final mortgage. The final value is based on taking the first appraisal of the house (as it stands now), then reviewing the plans/specs for the addition to determine the new value. It’s very much like the 203K, but all handled by a local lender. — Anonymous

A: That’s an interesting option. I have no idea whether that mortgage is offered where those homeowners are, but it sounds as if they should keep on looking, or consult a local mortgage broker, who will know what’s available.

If all else fails, perhaps they could take on the building loan they were offered, even though it was too short-term for their budget. Then they could refinance the whole thing into a new first mortgage when the remodel is finished.

Contact Edith Lank at www.askedith.com, or at 240 Hemingway Drive, Rochester NY 14620.