Understanding Real Estate Contract Contingencies
Contingencies in a real estate contract are conditions that must be met for the contract to proceed to closing. They protect the buyer from potential risks and allow them to back out of the deal without losing their earnest money deposit if certain conditions are not satisfied. The prevalence of contingencies can vary based on market conditions (in competitive markets, many contingencies are sometimes waived to make offers more attractive) but several types of contingencies are more common that others.
4 Common Contract Contingencies
Financing Contingency
This contingency states that the purchase of the property is contingent upon the buyer obtaining a satisfactory mortgage or loan. If the buyer is unable to secure financing within a specified period, they can withdraw from the contract without penalties.
Home Inspection Contingency
This contingency allows the buyer to have a professional home inspection performed on the property. If significant issues or defects are discovered, the buyer can negotiate repairs or request a price reduction or walk away from the deal.
Appraisal Contingency
The appraisal contingency states that the property must appraise for at least the purchase price. If the appraisal comes in lower, the buyer can renegotiate the price or withdraw from the contract.
Home Sale Contingency
If the buyer needs to sell their current home to afford the new one, this contingency allows them to back out of the contract if their existing home doesn’t sell within a specified timeframe.
It’s essential for both buyers and sellers to understand the contingencies included in the contract and the timelines associated with each one. Real estate contracts can be complex, so it’s wise to work with a qualified real estate agent and attorney to ensure that all parties are protected and the transaction proceeds smoothly.