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Friday, February 24, 2023

What to Watch For in Home Buying Agreements in 2023

Home buying agreements

What to Watch For in Home Buying Agreements in 2023

No one wants to sign a purchase agreement and discover, moments later, that they’ve made a terrible mistake. That’s especially true for home-buying agreements. And with more people making one of the most significant purchases of their lives—buying a home— sight unseen, that’s putting buyers at risk.

Imagine having thousands down only to discover cracks in the foundation or significant termite damage in the walls. Repairs like that can run thousands over on top of what you’ve already spent on the home.

Or, even worse, what if that home isn’t for sale at all? That’s why it’s important to know what home-buying agreement scams are out there—and how they might impact you.

If you’re preparing to buy a home in 2023, here are some of the clauses inside home buying agreements that it’s a good idea to double-check.

#1: Protect Your Purchase From Intense Weather Events

seaside homes damaged by hurricane

Development across the coasts is harder and harder to come by. In fact, coastal housing is now a $1 trillion market. Intense weather events like storms, hurricanes, and other natural disasters can create all sorts of damage, from minor to catastrophic. So what if you have a signed agreement, and during the underwriting and inspection period, a hurricane crops up and floods the home?

In the world of home-buying agreements, these issues commonly fall under “casualty provisions.” They may become a more prominent addition for those putting together home-buying contracts in the future.

What are casualty provisions? They’re typically put in place to assess damages and might make it possible to terminate a purchase agreement. After all, you wouldn’t want to put money down on a home only for the property to be wiped out in a natural disaster.

Reuters finds there are typically three reasons to include casualty provisions within a home-buying agreement:

  • The ability to define a casualty event’s severity—and whether that severity is enough to terminate the contract
  • How will the timing go if there is any right to terminate by either the buying or the selling party due to the event
  • How to proceed with repairs or insurance in the event there’s been a storm or damage during the home buying process

In the recent past, some home purchases moved so quickly that casualty provisions often weren’t major concerns. But with mortgage costs increasing in 2023, homes are lingering longer on the market and between contact and close. That leaves more time for potential storm and natural disaster damage. And if that happens, both parties need to have a plan baked into the home-buying agreement.

#2: Tweaks to Handle the Impact of Rising Interest Rates

mortgage high interest rates

There’s not much a purchase agreement can do about the state of the economy. If the house is more expensive than the buyer would like, then that’s an issue for negotiating before signing on the dotted line. There’s no clause within a buying agreement that can change that fact.

However, some issues about locking in rates have become more pressing in recent years, especially thanks to inflation. In 2022, the Federal Reserve aggressively raised interest rates to fight inflation. That caused mortgage rates to rise, sending the cost of home mortgages soaring.

For the 2023 home buyer, the issue of when to lock in the rates is more important than it has been in some time. It could save you thousands over the long-term and impact if the monthly payments will fit into your budget. That means you should pay attention to a few factors:

  • Closing deadlines. The closing deadline is the latest date the housing agreement will go through. The more time passes between the tentative agreement and the closing date, the more potential that mortgage rates will increase, potentially changing the buying environment.
  • Enforcement. How does the purchase agreement hold the seller to the closing timeline? Be sure to speak with an attorney to develop a closing timeline with proper rules to ensure that the lender’s requirements from your end will be met, even if the deadline comes and passes.

#3: Force Majeure

a house that is damaged by a big trunk

What happens if unforeseen circumstances happen between when the agreement is signed and when it’s scheduled to go through? If there’s anything that the years between 2020 and 2023 taught us, it’s to expect the unexpected. And a force majeure clause within an agreement is one way to prepare both parties for the unexpected.

If a purchase agreement is in place, a “force majeure” typically refers to events neither party can control. These events are only an issue if they prevent either party from being able to carry out what they’ve agreed to. In the event of a force majeure, the agreement may allow additional time to pass so both parties can fulfill their obligations.

It might seem like this overlaps with casualty provisions in some cases. That’s why both parties in the agreement should make sure that the specific applicable events are listed in the agreement itself. For example, let’s say the government swoops in with a closure order on the home. In that event, both parties will need more time to ensure the sale can go through. The seller’s hands may be tied—and even if they did want to continue with the sale, the government regulations might prevent them from doing so for a time.

Protect Yourself When Buying A Home

Purchase agreements are in place for many reasons. They keep buyers and sellers honest, clarifying the process and covenants to adhere to. But in 2023, uncertainties with mortgage costs, weather events, and the unexpected could potentially make these home-buying agreements more important than ever. Make sure you include the clauses above to protect your interests. Your local real estate agent can also explain various provisions that may be applicable to your specific home sale or purchase.

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Preston Guyton

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