Contingencies are conditions that must be met to finalize a real estate transaction. They are in the contract to protect the buyers and sellers. A contingency is an opportunity to cancel the sale if issues develop with the property and/or transaction process. Removing or not including contingencies can make an offer more attractive to a seller but it can also leave the buyer unprotected.
5 Home Contingency Clauses:
The home inspection contingency clause is the most critical. It should be done by a neutral professional inspector to assess the major systems of the home. This will include electrical, plumbing, roofing, and structure. Without this contingency, the buyer has no recourse to issues and problems with the house. This is also true for waving the buyer’s ability to request the seller to make repairs. This is an important secondary negotiation between the parties. Many are selling “As Is” sales and there are buyers also that agree not to ask for repairs.
The home appraisal contingency clause tells the value of the home you want to buy. It will tell you whether you’re offering a fair price for the home or offering to pay too much. If the appraisal is too far below the price you’ve offered for the home, you can change your offer or back out of the deal altogether, if you wish.
The appraisal is also what the banks use to determine the amount and terms of the home loan to offer you. If the appraisal comes in too high, the bank loan you’re offered may not be enough to cover your costs to buy the home, and, to proceed with the transaction in spite of that, you’ll have to come up with the difference on your own.
The financing or mortgage contingency clause is another extremely common clause in real estate contracts. This clause states that your offer will be contingent on your ability to obtain financing. The financing clause will specify the type of financing you wish to obtain, the terms of the financing, and the amount of time you will have to apply for and be approved for a loan.
The financing contingency can be helpful for buyers because it protects you if your loan or financing falls through at the last minute and you are unable to secure financing at the last minute. This contingency will allow you to back out of the transaction without facing any legal consequences or losing the money you put up as part of your earned deposit. The financing contingency is one reason why sellers prefer working with all-cash buyers who will not need financing in order to buy.
The financing contingency protects the buyer because the buyer will only be obligated to complete the transaction if they are to secure financing or a loan from a bank or other financial institution.
The home sale contingency clause you can add to an offer to protect you in case your current home doesn’t sell. It states that you won’t purchase the home unless your existing house successfully closes within a certain time period—usually between one and two months.
After that, you may be able to extend the contract with the seller’s permission. But if the seller doesn’t want to wait any longer for your home to sell, the contract will be void.
The title contingency clause will investigate the title of a home to make sure there are no problems with the ownership of the home. The title serves as a record of homeownership and is essential to the sale of the property. In most cases, any issues with the title can be resolved before the closing process. However, this situation could lead to several challenges for the potential new homeowners in some cases. A few examples include a lien on the property that must be paid before the sale or perhaps an ownership dispute if the seller cannot legally prove they own the property. A title contingency protects potential owners from these situations by allowing them the opportunity to walk away if these issues are not resolved before closing.
The Bottom Line: As a buyer, contingencies are vital: They provide you with an escape hatch from the property purchase if, for example, your mortgage financing falls through or other uncontrollable events or discoveries create barriers to your finalizing the deal. However, they make your offer less attractive to the seller. In hot markets with competitive bidding situations, buyers sometimes omit or waive certain contingencies altogether.