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The most important difference between the old contract and the new contract is the separation and clarification of the meaning of making the purchase offer contingent on the purchaser obtaining financing and on the property appraising for the amount of the offer.

Mr. Hunnings says that separating the financing and appraisal contingencies allows them to be dealt with independently, which reflects the fact that loan approvals can often be accomplished very quickly in today’s market, while appraisals can take longer.

Mr. Darby says, “In the old contract, appraisal contingencies were built in to every contract but not in a definite term, which often ended up by being more of a problem.

“The financing contingency also changed,” he says. “It used to be removed by virtue of a letter from a purchaser to a seller from the lender. Now the form requires the purchasers to check a box which says they understand that their deposit is at risk and that if they don’t get the loan they are in default and can lose their deposit.”

Mr. DeBragga says that the new contract incorporates language that should provide a fair warning to buyer and seller and stimulate a conversation between the two sides, which will resolve problems early enough for settlement to take place.

“From the sellers’ point of view, the new contract offers protection because the sellers want to know the contract is solid ASAP,” Mr. Hunnings says.

“The buyers want to protect their earnest money deposit right up to the settlement day. Both parties can use the financing and appraisal contingencies as a negotiating tool,” he says. “If the buyers have all their financing in place and offer to waive the financing contingency, they may be able to negotiate a better price since they represent less risk to the seller.”

Understanding the consequences of choosing option 1 or option 2 for each of the appraisal and financing contingencies in terms of an overall home-buying strategy is crucial for buyers.

Mr. Simon says, “If you are a buyer who has lots of money, you might want to consider waiving the contingency because you could get a better price for the home. Sometimes overprotecting yourself is not necessary.”

Mr. Simon says that there was no place in the previous contract to waive an appraisal contingency but that during the 2003 to 2005 market, people were willing to waive this contingency by writing an addendum to the contract.

During that rapidly accelerating market, buyers believed that even if the home appraised for less than their offer, they could quickly recoup the additional money spent because of the anticipated increase in home value.

“Now there is a check box on the contract for waiving the appraisal contingency, which makes it clear to buyers that if the price of the home is greater than the appraised value they will be in default if they cannot come up with the difference in money,” Mr. Simon says.

Lenders will not approve a mortgage that exceeds the value of a house.

“If a buyer is relying on financing to pay for their purchase of the property, they need a good appraisal to get into the house,” Mr. Simon says. “In a flat market, buyers may not be willing to make up the difference in cash since they are less certain that the home will quickly increase in value.”

In addition to the important appraisal and contingency waivers, some smaller items have also been addressed in the new contract.

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