In most purchase transactions there may be a slight challenge or two, but most things will go quite smoothly. However, you want to anticipate potential problems so that if something does go wrong, you can cancel the contract without penalty. These are called "contingencies" and you’ll want to determine with your agent how to include these in a competitive offer.

There are common contingencies you should include in your offer. Since you probably need a mortgage to buy the home, you would have a loan contingency in place to get final approval on obtaining financing. Another condition would be that the property appraises for at least what you agreed to pay for it. During the escrow period you are likely to perform certain inspections, and the inspection contingency would give you a certain period of time to do your investigations and review them.

Basically, contingencies protect you in case you cannot perform or choose not to perform on a promise to buy a home. If you cancel a contract without having built-in conditions and contingencies, you could find yourself forfeiting your earnest money deposit. Contingencies are also a way to set yourself apart from the crowd of people offering on a house so you want to make sure your agent is able to strategize with you on these terms.

Next: Earnest Money Deposit