There’s Nothing to Fear – Your Real Estate Contingency Definitions are Here!
In the real estate world, the word “contingency” is pretty commonplace. But, for a first-time home buyer or seller, a contingent offer may be a bit confusing. Typically, contingencies are circumstances that are written into a sales contract to protect a buyer or seller. For buyers, contingencies are specified conditions that may allow them to back out of a sales contract without losing any money that they’ve put down. For sellers, contingencies may allow them to continue considering other offers if specific conditions are not met. So, real estate contingencies… conditions… circumstances… what are they?! Here are four common contingencies that buyers and sellers may come across: The Home Inspection Contingency: Ah yes, one of the biggest deal breakers when it comes to real estate is one of the most common contingency clauses in a real estate contract! Home inspections are required parts of the closing process. If a home inspection reveals that a home has major damage or is in need of repairs that may not have been easily visible, a home inspection contingency can give the buyer flexibility to walk away from the sale without losing their down payment. Of course, the buyer also has the flexibility to work with the seller toward completing the needed repairs before they give up on a home. Home Appraisal Contingency: Another vital part of the closing process is the home appraisal and that appraisal is also cause for another common real estate contingency. If a home is appraised for less than the amount of the sales price or loan amount, an appraisal contingency can give the buyer the freedom to walk away from the sale without losing any money. The buyer and seller may choose to renegotiate the price of the home, but the appraisal contingency protects the buyer from losing money they’ve already put down. Financing Contingency: Many buyers today enter the home search process armed with pre-approval from a lender; so, financing contingencies may be less common than they once were; but, they are still put in place to protect buyers and sellers. If a buyer makes a conditional offer on a home based on their ability to secure financing, then finds that after a specified amount of time they are unable to do so, a financing contingency allows them to back out of the offer without losing their down payment. On the seller’s side, once that specified amount of time runs out and the proposed buyer is unable to secure financing, the seller is free to entertain and accept other offers. Home Sale Contingency: Not too dissimilar from the way a financing contingency works, a home sale contingency is a conditional offer based off of the buyer’s ability to sell their own home before purchasing a new home. It is unrealistic for many buyers to carry two mortgages while waiting for their own home to sell. So this contingency has a time frame that allows the buyer to back out of the sale if they are unable to sell their home. Similarly, a home sale contingency allows the seller to accept other offers if that condition is not met in the specified time frame. Of course, in an ideal real estate transaction, the buyer and seller have no strings attached to the sales contract. But, frankly, some real estate contingencies are common in nearly every home sale. Though the word “contingency” may sound unfamiliar and a little daunting to first-time home buyers and sellers, they’re a pretty common part of the real estate process and are nothing to fear once they’re understood! If you’re considering buying or selling a home and you need some help understanding common real estate contingencies, contact an experienced Berkshire Hathaway HomeServices The Preferred Realty agent today!
