All About Contingencies

Contingencies are conditions or clauses included in a real estate contract that must be met for the transaction to proceed to closing. They provide a way for either the buyer or the seller to back out of the contract if certain conditions are not satisfied. Be sure you have a conversation with your real estate advisor and or real estate attorney before releasing or exercising your contingencies to ensure you have a clear understand of the associated risks*.  Here are some common types of contingencies:

1. Inspection Contingency: This allows the buyer to have the property inspected within a specified period. If the inspection reveals significant issues, the buyer can negotiate repairs, ask for a price reduction, or withdraw from the contract.

2. Financing Contingency: This protects the buyer if they are unable to secure a mortgage. If the buyer cannot obtain financing within the specified time frame, they can back out of the deal without losing their earnest money deposit.

3. Appraisal Contingency: This ensures that the property appraises for at least the purchase price. If the appraisal comes in lower than the agreed price, the buyer can renegotiate the price or cancel the contract.

4. Home Sale Contingency: This allows the buyer to make the purchase contingent upon the sale of their current home. If the buyer's home does not sell within a specified period, they can withdraw from the contract. Sellers can also have their own version of this, which is a contingency subject to the seller finding a replacement property and closing within a specific amount of time.

5. Title Contingency: This ensures that the seller can provide clear title to the property. If there are issues with the title that cannot be resolved, the buyer can back out of the contract.

6. Insurance Contingency: This allows the buyer to verify that property insurance can be obtained at a reasonable rate. If insurance is unavailable or prohibitively expensive, the buyer can cancel the contract.

Contingencies protect both parties in a real estate transaction by outlining specific conditions that must be met for the sale to proceed. They provide a structured way to address potential issues and ensure that both the buyer and seller have clear expectations. Reach out to your trusted real estate advisor or real estate attorney to discuss what contingencies make sense for you!