Contingencies: An Overview
For those who aren’t familiar, a contingency is basically a stipulation (which it is sometimes called) that is added to your contract. A contingency is a statement that will allow you to back out of the deal without any sort of penalty so long it takes place under specific circumstances. While some contingencies, like a home inspection, are considered to be quite normal, they are often used by buyers who aren’t 100% convinced they’re ready — or able — to buy the property in question. By having contingencies in the contract these potential buyers are able to buy some extra time to sort everything out.
Here are some Common Contingencies Found in Real Estate Contracts
Financing Contingency:
Financing is one of the most common types of contingency. Basically, it says that your offer is contingent on you being able to procure financing for the property. It will often be specific about the sort of financing (eg: Conventional Loan), as well as the terms (interest rate, down payment, etc), and the time period.
Sale of Current Property Contingency
This is perhaps one of the most tricky contingencies on this list. However, it has also become more common these days among homeowners looking to upgrade their current house. This contingency basically says that the Buyer in question has a right to back out of the deal should he or she not be able to sell their current residence. Generally, the contingency will call out a time period for which the contract is in effect, thus giving the Buyer that amount of time to sell his other property.
Sale of current property is without a doubt among one of the riskier contingencies to put in an offer. While it does make sense if you are still in the selling process, it is not uncommon for this type of contingency to scare a seller away.
Home Inspection
A home inspection is without a doubt one of the most common (and in most cases least intimidating) contingencies that can be put on an offer.These contingencies are so common in fact that many real estate agents do not recommend submitting an offer without this – unless it is a relatively new build. This is because a home inspection provides you with the knowledge that your home is safe. That everything is up to code and informs you of what could potentially need replacement or repair in the not too distant future. In many cases, unless a home inspection is completely failed – finding out that the windows are not energy efficient or that the siding is in need of repair are used for price negotiation as opposed to necessarily backing out of an offer.
In addition to the three kinds of contingencies described above, there is a multitude of others out there for almost any given situation.
Other Common Types of Contingencies include
-Home Inspection Contingency
-Appraisal Contingency
-Sewer Inspection
-Well Inspection
-Home Owners Association Documentation
Tips for Using Contingencies
While having a contingency in your offer is not necessarily a bad thing, having too many is an easy way to move your offer towards the bottom of the pile – sellers want to sell their home for the highest price and the lowest headache.