A contingency can be explained is a clause in a formal real estate contract that states there are certain conditions that must be met by either the buyer or the seller in order to continue to the next step in the contract. There are contingencies in almost every real estate contract.
They are there to protect the buyer and the seller. If the contingencies are not met, there might be a breach in the contract, and the transaction could fail to close.
There are several different types of real estate contract contingencies.
The first of these is a mortgage contingency. This means there is a stipulation in the contract that says a buyer will obtain a mortgage loan for a specific amount within a certain time period. Once the mortgage loan is obtained, that contingency is removed from the contract. If the buyer is not able to obtain the mortgage, it is possible to withdraw the contract without being penalized. This is a contingency that protects the buyer.
Another contingency that is put into place to protect the buyer is a home inspection contingency. If there is a home inspection ordered and the house does not pass due to factors like termite damage or faulty wiring, the buyer has the right to exit the contract and receive any deposits or earnest money back. If the issues can be corrected, the buyer can request these repairs. If the seller does not agree, the contingency cannot be removed and the contract is voided.
Another popular contingency to put into the contract is one that allows for the sale of the buyer’s current home. This will allows the buyer a specified amount of time to sell his or her current home before buying a new one. The contract will be voided with no penalties assessed if the current home does not sell. This protects the buyer from a situation where he or she would have to pay two mortgage loans at once.
A contingency of this type also protects the seller. If the seller receives a second offer on the home that is more attractive than the first, he or she will be able to accept the new contract without facing a penalty.
One of the most common contingencies added to real estate contracts is a contingency for a 24-hour attorney review. Once both parties have signed the contract, the attorney for the buyer will be given 24 hours to approve the contract. The attorney gives the buyer peace of mind that the contract is in legal order. It is important to remember that contingencies should be reasonable requests. You do not want to lose a seller or a buyer because of unreasonable contingencies. Work closely with your agent and be fair.