When buying or selling a home, you want to make sure that your interests are protected. No sale goes 100% smoothly and there may be a time when you must back out of the contract. This is where contingencies come into play.At this point, either the buyer and the seller can cancel the deal and move on with no consequences. For buyers, this can mean getting their earnest money deposit back.
Here are the six most common contingencies in real estate:
During a mortgage contingency, a specific window of time is set for the buyer to obtain financing. If the deadline is met without financing, the seller can put their home back on the market and move on to a different buyer.
When you are buying and selling a home at the same time a sale contingency means that the sale of your home is contingent on you finding another. If you don’t, you can withdraw your home from the market. When using this contingency, understand that buyers may be put off by the idea that the sale may not go through.
Researching the title of the home is standard procedure to make sure that it’s free and clear of defects. This contingency ensures that the seller is legally able to sell the property and that the buyer can back out if the ownership of the property is questioned.
A home inspection contingency is one of the most common contingencies. As the name suggests, the buyer has the right to get the home inspected (and they should, contingency or no) and back out if needed. This is especially important if the seller elects not to fix the problem.
If the appraisal of a property comes in low you have several options to remedy the situation—including walking away if you and the seller cannot agree on a new price. While low appraisals don’t occur too often, it’s best to be prepared.
Homeowner’s insurance is essential, as it is required by lenders if you are purchasing with a mortgage. This gives you protection from liability and natural disasters. A homeowner’s insurance contingency specifies that the buyer must obtain insurance and if they can’t, either party can withdraw.
Before adding a contingency clause to your contract, consult with your real estate agent. They will ensure that the clause is legal and easy to understand for all parties.
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