As the seller or buyer of a property, you have a lot to sweat about. There’s so much paperwork and signing that we can get lost in all the details. And just when something doesn’t seem right, our instincts can tell us to back out. That is what contingency clauses are there for when you are trying to sell or buy a home.
What are Contingency Clauses
When the buyer or seller’s conditions are not met, they have a chance to back out of the deal. Contingency clauses provide that path. There are specific ones for each type of reasoning. Both parties must agree to them before the contract is final. Let’s go over them!
1. Title Contingency
A title contingency gives the buyer the right to do a title search and have any disproval of it. This must be allowed by the seller for the buyer to close on the transfer of said title. One of the most common contingencies is the buyer’s offer being able to pull out if they find any liens upon the home. The title will also give the buyer the property’s history of ownership.
2. Appraisal Contingency
Appraisal contingency clauses protects the buyer by stating that the property must be worth at least the proposed price or the contract is void. It also protects banks so they are not loaning out more money than what a property is worth. This continency can also mean that the seller can choose to lower the price to the appraised value.
3. Mortgage Contingency
A mortgage contingency gives a time limit in which the purchaser must solidify financing. This is typically done via a loan commitment letter. If they don’t get a loan within that window of time, the purchaser can back out free of penalties. The seller can then put the property back on the market.
4. Insurance Contingency
Homeowner’s insurance contingency states that the purchaser must be able to insure the property. If they cannot get the proper insurance, both parties can withdraw from the contract. This contingency is usually asked for by the mortgage lender or the seller.
5. Home Inspection Contingency
A home inspection contingency regards the timeframe the purchaser has to get the property inspected by a professional. It is usually done 5-7 business days after the agreed upon terms. This inspection will make certain that there are no big problems with the property, such as foundational leaks or structural damage. If the inspection comes back with serious problems listed, the purchaser and seller must come to an agreement. If the purchaser is not satisfied with any agreement, they can end the contract.
6. Home Sale Contingency
A home sale contingency protects the purchaser that requires money from the sale of their existing property to afford the new property. If the purchaser cannot find a buyer for their current home within a timeframe agreed upon, they can back down from the new purchase.
Bottom Line for Real Estate Contingencies
It may seem like a lot of contractual mumbo jumbo, but all of it is very important when you are sitting in eith]er the purchaser or the seller’s seat. A lot of poor deals have happened to get to where we are today. You have a lot of real estate experts from years of experience to thank for all the protections we now have!
Looking for an experienced realtor that can help guide you through all these contingencies? With 45 years of combined experience as a builder and real estate agent, you couldn’t ask for anyone more knowledgeable than Gregg Sutter. With all this hands-on experience, Gregg can see problems that other real estate agents might miss. Contact Gregg today!