The term “contingency” refers to a provision you make for a circumstance that you may not be able to predict, and in real estate, especially as a home buyer, certain contingencies are quite common. Real estate contingencies are terms that buyers set for sellers with the agreement that the seller will meet the terms for the sale to proceed. Below, you will discover some of the most common real estate contingencies in the industry.
Financing Contingencies
If you make an offer on a home, you could put a contingency in your offer that you must be given time to get your mortgage through the final approval process. Basically, the seller agrees that he or she will wait for you to fill out your application and receive your loan and will not accept an offer from anyone else in the meantime. Keep in mind, though, that the seller may put a time limit on such an agreement.
Appraisal Contingencies
For a bank to finance a home, it will first have the home appraised to determine its actual value. Ideally, the bank will appraise the home at or above either the asking price or the offer you made to the seller. Appraisal contingencies simply state that if the home appraises for much less than the asking price, you have the legal right to walk away from the sale. It’s an excellent protection and one that should be a part of every single agreement you sign.
Title Contingencies
When you buy a home, you have a right to certain information about that home, such as tax liens due to unpaid property taxes. Unfortunately, when someone buys a home associated with a tax lien, the new owner also takes on the burden of that debt. A title contingency simply protects a buyer if a title check finds evidence of an undisclosed lien. In this case, you can simply walk away from the sale with no penalties.
Inspection Contingencies
Finally, another important contingency – and one that many buyers seem to forget, much to their dismay – is the inspection contingency. Before you buy a home, you should always have it inspected by one or more professionals. Things like the roof, the foundation, and even the HVAC system should all be in good working order. If the seller does not disclose any issues, but an inspection reveals a major problem, an inspection contingency would protect you in two different ways. It would not only give you the right to walk away from the sale, but it would also allow the seller to make the required repairs to satisfy the inspector so the sale can proceed.
Home-Sale Contingency
The last contingency is one that can prove very useful and it is known as a home-sale contingency. If you make an offer on a home and the seller accepts, but the sale on your current home falls through, you might find yourself stuck with two mortgages and a budget that cannot accommodate them. A home-sale contingency allows you to back out of a deal with a seller if you cannot close a sale on your home within a specified time. It is important to keep in mind that adding a home-sale contingency clause to your offer can make you a little less appealing to sellers, so be sure to use it wisely.
Real estate contingencies are designed to serve as protections for buyers. They prevent buyers from being stuck with undisclosed tax liens or even significant repairs that were not revealed prior to making the offer. However, not all contingencies are right for everyone, so before you make an offer, be sure to talk with your trusted real estate agent.
