Contingencies In a Real Estate Contract
You’ve found the perfect house, and you’re ready to make an offer! It is a big step! As a buyer, you hope everything will lead to a smooth closing, however, what ways are you and your money protected in case any issues arise? This is where contingency clauses come in. A contingency allows you to void the contract while still retaining your earnest money deposit. There are standard contingency clauses, and a couple that are a little more specialized.
First of all there is the Home Inspection Contingency. This contingency allows the buyer a certain number of days to get a licensed home inspector to inspect the property and provide a report to the buyers. Once the home inspection is completed, the buyer can either negotiate with the seller or void the contract.
Second, there is the Appraisal Contingency. This allows the buyer and the lender a certain amount of days to have an appraiser go out to the property and determine if the home appraises at the sales price. If it does not, then it is either time for more negotiating, as the lender will not lend the buyer more than what the home appraises for, or the buyer has the option of voiding the contract if an agreement cannot be reached.
Next, there is the Financing Contingency. This allows the buyer a certain amount of time to secure the financing to purchase the home. If for any reason the buyer cannot secure a mortgage with a lender, they are not obligated to purchase the home and can void the contract and recoup their earnest money deposit.
Another set of contingencies are the HOA or Condo Document Contingencies. If a buyer is purchasing a home that is a part of an HOA or a Condo association, the seller must provide the buyer with the bylaws and other rules. If for some reason the buyer does not agree with the bylaws or fees, they have the option to void the contract within a certain number of days after receiving the documents.
Finally, there are two contingencies that are a little unusual. They are the Sale of Home Contingency or the Home of Choice Contingency. The first, sale of home contingency, protects the buyer if they are also selling another home and must sell in order to buy. This allows the buyer a certain amount of time to sell the home and if it does not sell allows them to void the contract. Next, the home of choice contingency is very similar. If the home the buyer is selling goes under contract prior to them finding the home they want this allows them a certain amount of time to find and go under contract on a home of their choice. If for some reason they cannot find a home to purchase, this allows them to void the contract.
When putting together your offer, your agent should discuss all the different contingencies and which make the most sense to add to your offer to ensure you are protected. Once under contract, you and your agent will need to stay on top of the dates of the contingencies as each one has a very specific timeline during which the buyer can void the contract and still retain their earnest money deposit.
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