Contingencies are typically included in a purchase agreement (AKA Agreement of Sale) and serve as a protection for the buyer. Contingencies allow a buyer to back out of the deal, if certain conditions are not met, without losing their deposit.
In real estate, a contingency is a condition that must be met before a real estate transaction can be completed. It is typically included in a purchase agreement or Agreement of Sale and serves as a protection for the buyer, allowing them to back out of the deal if certain conditions are not met without losing their deposit.
Contingencies can vary and there are several types of contingencies in real estate, including:
Inspection contingency: This allows the buyer to have the property inspected by a professional and to back out of the deal if any major issues are found. Typical inspections are a Home Inspection, a Pest Inspection, Radon, Inspection and Sewer and Water Inspections, depending on where you live.
Financing contingency: This allows the buyer to back out of the deal if they are unable to obtain financing for the property. If you are purchasing with a mortgage, the agreement can be written with a Mortgage Contingency stating that the buyer only has to purchase the property if they can obtain a mortgage for a specific amount for that specific property within a specific interest rate range. If the bank will not provide a mortgage for you to buy the home you have under contract, you do not have to move forward with the purchase.
Appraisal contingency: This allows the buyer to back out of the deal if the property does not appraise for the agreed-upon amount. It may or may not be for the purchase price, depending on the type of loan the buyer is getting and what’s agreed to in the contract.
Home Sale contingency: This allows the buyer to back out of the deal if they are unable to sell their current property before the purchase of the new property. Typically, the buyer will have to prove that they are making a concerted effort to get their home sold in a timely manner.
A contingency doesn’t mean that you’ll take it or leave it. You can use your contingency to negotiate any of the items with the Seller, and if agreed, move forward with the purchase.
Basically, contingencies provide a level of protection for the buyer and can help ensure that they do not end up purchasing a property that is not in their best interest. Keep in mind, depending on the terms of the contingency, they may make the Seller feel uncertain that the buyer will actually move forward and purchase the home and, therefore, they can make a seller less likely to accept an offer. Be sure to discuss the best contingencies to include and the best way to present them with your agent.
Stephanie Slapin
May 17, 2023