Contract Contingencies: Everything You Need to Know

Contingencies are actions or conditions that must be met before a real estate contract becomes a binding agreement. Contingencies protect the buyer and seller, and both parties must agree to the contingency terms for the agreement to be legally enforceable. These clauses allow buyers or sellers to back out of the deal if one or more of the contingency requirements are not met.

 

Contingencies are common in the real estate industry, so you should be familiar with them if you plan on buying or selling a house in the near future.

 

This article covers common contingencies in real estate and helpful tips on how to use contingencies as a buyer or seller in today’s market.

 

Common contingencies

 

A positive aspect of real estate contingencies is that there are only a few that you’ll run into while buying or selling a house, making it easier to remember the implications of each. Below are the most common contingencies you’ll encounter when buying or selling a home.

 

Mortgage contingencies. The mortgage contingency is very common and depends on the buyer obtaining a mortgage within a specified time period. Failure to secure a mortgage within that time allows the buyer to back out of the transaction and the seller can put the home on the market again.

Appraisal contingency. The appraisal contingency is important for buyers and sellers because it specifies that the home must be appraised for a minimum value or the contract can be canceled. Lenders want to see that the house isn’t priced higher than the fair market value and they use several methods to do so. They look at comparable properties, tax records, and an in-person home appraisal and property evaluation.

Home inspection contingency. Home inspections are a crucial part of the real estate buying process. Buyers are responsible for getting the property inspected within a specific time frame to ensure that there aren’t any serious issues that make the house unsafe.

Title contingency. The title contingency allows buyers to back out of the deal if the title search finds that the property owner is in question. The property may not be conveyed to a new owner without a free and clear title.

Homeowners insurance contingency. This contingency states that the buyer must obtain homeowners insurance for the deal to move forward. If a buyer can’t get the proper homeowners insurance, both parties can withdraw from the contract with the homeowner's insurance contingency.

Home sale contingency. Buyers who need to sell their home to purchase a new property may establish a home sale contingency. This contingency stipulates that if the buyer cannot sell their home by a certain deadline, they can back out of the contract.

 

Final Thoughts

 

Contingencies are necessary for real estate transactions and help protect buyers and sellers in certain scenarios. Becoming familiar with common real estate contingencies is important if you plan on buying or selling a home in the future. Be sure to work with a qualified agent in Massapequa to get your home buying or selling journey started today!