Real estate contingencies refers to a provision in a real estate contract that can make the contract in question null and void if a specific occurrence should take place. In short, real estate contingencies must clear for a real estate contract to become legally binding.

📜 Common Real Estate Contingencies Explained

someone thumbing through a real estate document with a pen in handReal estate, like any other industry or sector on earth, is characterized by some terms that frequently used.

If you are preparing for the sale or purchase of a home, educating yourself on the various industry terms can go a long way in helping to make the process a lot more straightforward.

One of this term used is a “contingency” in real estate.

When you receive an offer to buy or sell your house, it is essential to take note and review all the contingencies contained in the contract.

All of these are moving pieces.

Each can allow the agreement to move along until ownership is established in the buyer’s name.

And, at each critical point, there is also the opportunity for the transaction to cancel.

It all depends.

These contingencies are critical components of any real estate contract.

They are not innately bad.

Nor are they always good.

They are simply a component that is commonly agreed to in order to protect the interest of the buyer and seller.

Let’s see if we can learn more about these powerful tools.

To keep you informed, here are some common real estate contingencies explained:

 

💲 Financial Contingencies

Almost all real estate contracts will include a financing contingency which allows the buyer to withdraw from the purchase agreement.

Essentially, if the buyer is unable to obtain the proper financing then without any consequences should they be unable to obtain the necessary financing they need to see the deal through.

Of course, if the buyer does something reckless to cause this then they could still be on the hook.

Most financial contingencies will issue a time period to secure a loan.

Make sure that you are aware of the days requested and agreed to if you are involved in a real estate sale.

Financial contingencies also detail other specifics such as the terms of the loan as well as the repayment periods and so on.

💯 Appraisal contingencies

Appraisal real estate contingencies exist if the lender asks for the property to be evaluated and valued before the requested loan can fund.

If the property valuation does not get appraised for a sum that is large enough, the lender might refuse to finance the purchase.

If you are involved in such an incident there are a few things that can happen.

  1. The appraisal can be challenged if you feel that there is an error in the valuation
  2. The buyer can agree to pay the difference between the contract sales price and the appraised value.
  3. The seller can drop the price to the appraised amount.
  4. The buyer and seller can agree to split the difference.

Motivated buyers and sellers always seem to find a way.

🕵️ Inspection contingency

Inspection real estate contingencies exist to protect the buyer as the necessary authorities are inspecting the prospective property.

Most buyers will seek help from a home inspector so that a special investigation can be carried out.

If the buyer gets an inspection report that points to a bunch of serious problems the deal could be finding itself on thin ice.

If this is the case the buyer and seller can agree to a solution.

Typically, there is an agreement to repair or replace non-working items or to credit the buyer with a dollar amount that can be applied towards closing cost, or price.

🏠 Home sale contingencies

Home Sale Signing for real estate contingenciesA home sale real estate contingencies can be present if the buyer id depending on the sale of their existing property to be able to buy their new one.

The buyer may put a home sale contingency in the contract if the buyer puts in an offer on your property while theirs has not sold yet.

Home sale contingencies are considered a turn off because it usually implies longer time frames and more significant risk factors, which can leave you property stagnant in the market.

Please note that the seller or buyer can opt to include just about any contingency that they want into the contract negotiation, but both the buyer and the seller have to agree on the contingencies in place during negotiations.

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