What Are Real Estate Contingencies?
What are real estate contingencies? There are some clauses that you may encounter when buying or selling a house. It would be best to thoroughly understand the contingencies listed below before signing a purchase and sale agreement.What Are Real Estate Contingencies?
Home Inspection:
often called a due diligence contingency, will give the buyer rights to have the house inspected. In extreme seller’s real estate markets, it is not uncommon for buyers to waive a home inspection as a way of sweetening their offer.
The inspection contingency is contingent on a satisfactory house inspection report. The purchaser will need to be sure that there are no significant expenditures required immediately, like a new roof. A requirement for a new roof might cause the buyer to terminate the contract or alternately ask the seller to pay for it.Home Sale Contingency
is put in place when the buyer has not yet sold their own home. Purchasing is contingent on making the sale first. If you are the homeowner awaiting purchase, you may want to put a time limit on this clause when signing the contract. You won’t want it to drag on for months and miss out on other buyers. Home sale contingencies are often frowned upon due to their risky nature.Financing Contingency
allows the purchaser to get the funds to buy the property from a lender of their choice. Unless a buyer is paying cash, the mortgage contingency clause is almost always found in a purchase and sale agreement.
A financing contingency gives the buyer time to raise funds for the purchase, and if they can’t raise funds, they can be released from the contract without penalty. The mortgage contingency clause will specify how much the buyer is borrowing and when they need to procure their financing.Appraisal Contingency
You are waiting for a valuation from the bank’s appraiser that satisfies the bank. You need the real estate appraisal to be at a specified amount. An appraisal contingency will protect you by ensuring the property is valued at the minimum amount required by the borrower.Association Contingency
A homeowners association’s document contingency gives you the right to back out of the sale if you find something in the documentation that is not to your satisfaction. There will often be a clause stating the purchase is subject to the successful review of the association documents and financials. Buyers will want to make sure they are comfortable with all of the rules and that the HOA is financially stable.
A contract to become ratified and binding must resolve these contingencies. While waiting on a resolution, the property is considered a contingent house listing. It will be marked in the multiple listing as “contingent” until all the contingencies are satisfied.
Real Estate Contingencies Explained
Once conditions are met, the contract is enforceable, and it is too late to back out without incurring legal consequences. Legal consequences could involve losing part or all of your earnest money deposit. Many real estate contracts will have earnest money as the relief a seller can get for a buyer not proceeding with a deal.
Why You Should Pay Attention to Contingency Clauses
Real estate purchase and sale agreements are legal contracts. You must understand the details when buying and selling. Not only are large amounts of money involved, but there is often an emotional investment as well. Contingency clauses are there to protect you, whether you are buying or selling.
When you buy your house, the contract may say contingent on quite a few things. It is essential to work with an excellent buyer’s agent who will carefully craft appropriate contingencies inserted into the contract.
Contingencies Can Benefit Buyers and Sellers
You can make contingencies work for you whether you are selling or buying, as you want your transaction to run as smoothly as possible and complete in time. A contingency is a condition that allows everything to move forward to completion. So it is useful when you are purchasing to have some specific contingencies in place to protect you.
Final Thoughts on Real Estate Contingencies
A contingency clearly states expectations and dates. Both buyers and sellers should have a clear understanding of all real estate contingencies meaning. Not understanding a real estate contingency could either cause problems in your transaction or, in a worst-case scenario, a loss of funds.
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