What are Contingencies on a Contract?
Contingencies are commonplace in contracts of all kinds. A contingency allows for one party or another to legally back out of a contract in the event of some specific condition occurring. They are protection against the unknown. In real estate, there can be contingencies inserted for either buyer or seller or both. These take many different forms and until removed in writing, either party may change their minds based on the result of the contingent event or issue. While the seller contingencies are less common, there are a few that you can use to your advantage, should you need them. Keep Reading to find out what they are and how you can use them to protect your interests.
Some examples of home buyer contingencies:
• Home inspections – condition of the home there are various inspection-related contingencies with specified due dates and requirements. These allow the buyer to demand new terms or repairs should the inspection uncover certain issues with the property – and to walk away from the deal if they aren't met. The seller can then either accept or reject those terms; rejecting them would also terminate the contract.
• Specialty inspections – mold, geological, roof inspections
• Code Violations – an investigation into improvements made without permits
• Lender appraisal – ensures the offered price is not too high. Should the appraisal come in lower, another negotiation might become necessary to see if the seller will lower the price to make up the difference. If not, this circumstance could void the contract
• Sale of current home – allows the buyer to back out if they cannot sell their current home in specific time frame. Sometimes the buyer is only able to close if he can get funds from the sale of his current home, which is usually under contract at the time he enters into the deal for the new home. So he makes the new deal contingent upon successful completion of his old place. A seller accepting this clause may depend on how confident she is of receiving other offers for her property.
• Final loan approval – loan is ready for signature and close
• HOA CC&Rs – review of documents to ensure rules and regulations do not infringe on enjoyment of property
• Insurability – home owner’s insurance available at a reasonable rate Home sellers can also have contingencies included as well, such as one which states the sale is contingent on finding a replacement home. Contingencies are a fact of contract law. In real estate, they ensure that the offer is concluded as expected.
It is important to know your personal interest in such a large financial transaction. The more you ask the better you will become with the process. It is important to have someone on your side looking out for your interests. Contact your Mortgage Lender or Me to find out more.
