What are Contract Contingencies?

A contingency clause in a real estate contract defines a condition or action that must be met before that contract becomes binding.  A “contingency” allows you to say, “I will buy your home if a condition(s) is met.”  The following are common contingencies requested by buyers in our area.

Loan Approval

If your loan falls through or interest rates are increased from the time of your initial loan preapproval from your lender, this clause allows you to be legally released from the contract.

Appraisal

Our local contract allows the buyer to have a licensed appraiser, who is familiar with the area in which the home is located, to perform an appraisal. Should the home appraise out less than the agreed upon purchase price, the buyer can request the seller reduce the price to meet the appraised value or the buyer can agree to pay the difference and proceed to closing.

Inspections

Our local board-approved contract allows your agent to write in a certain number of days in which you may have inspections conducted on the property you’re purchasing. The most common inspections performed in our area are home building, termite/pest and septic inspections. But our contract allows and encourages the buyer to perform any inspections that provides peace of mind in the purchase. Other types of inspections that are less common, but allowed, are radon, mold, structural and the list goes on.

If any issues are found during the inspection period, the buyer can ask the seller to make repairs. However, the seller is not required to agree to these repairs. Generally, this is another negotiation between buyer and seller. This contingency clause generally allows the buyer to walk from the contract if the buyer and seller can’t reach an agreement during repair negotiations.

A buyer may choose not to do inspections if they are comfortable with the home’s condition based on their assessment or if they want to make the contract more attractive to the seller. These are decisions that should be made with thought and caution by the buyer.

Sale and Close of Buyer’s Existing Home

If a buyer already owns a home and can only purchase a new home under the condition of selling the home they own, then the buyer needs to have his or her agent include a contingency on sale and closing of buyer’s home in any purchase contract. Once the buyer’s current home is under contract, your agent will need to remove the contingency on the sale of your home and leave in the contingency on the close of your current home. This protects you in the event the deal on your current home falls through for any reason.

Promise of Clear Title

Our local contract states that the seller must provide clear title before the property can close, meaning sellers must have clear ownership and have the right to sell the property, and there should be no tax or other liens on the property.

Walk Through

Our local contract states that the buyer has the right to walk through the property prior to closing to be sure all agreed upon repairs have been made and that the property is in the same general condition as when the purchase contract was written. If the home does not meet those standards, the buyer can refuse to close.

Other Contingencies

There are other contingencies you may choose to add to a contract, depending on your individual needs.  For example, if you want to read subdivision rules before committing, you could make that stipulation a contract contingency. Or if you want to hire an attorney to read over your contract, you might have your agent add that the contract is contingent on attorney review.

Can You Ask for Too Many Contingencies?

This answer varies with each deal, depending on the demand for the property and the personality of the seller. If the property has multiple offers, naturally the seller will most likely take the one with the fewest contingencies. After all, fewer contingencies mean a home has a better chance of closing. Even when there are not multiple offers, it is wise to be reasonable. Too many contingencies “muddies the waters” and makes the seller nervous about taking their home off the market for a buyer with a lot of demands. With the help of your agent, you as a buyer must determine what contingencies you can and can’t live without.

Note: The above information is meant to be a general overview of contract contingencies and is not intended to be legal advice for buyers or sellers. Each individual contract is different and there are no universally correct answers for all contracts. Should you have questions about your individual purchase contract, please consult your real estate attorney.