Understanding Real Estate Contingencies

September 12, 2022 12:17 am

Real estate agent showing new house to coupleIf you have ever bought a property, you’ll likely know what contingencies are. After all, contingencies can make or break a home sale. In real estate, a contingency refers to a condition in the purchase contract that must be met for the sale to go forward.

There are contingencies in almost every real estate contract. For example, if the buyer fails to get approved for a mortgage or the lender won’t increase the loan if the home appraisal comes in lower than the agreed-upon price, the contingency clause allows for the contract to be terminated without penalties or loss of earnest money to either the buyer or the seller.

Another common contingency is a home inspection contingency. This condition allows homebuyers to back out of the deal if the inspection turns up major issues and the seller won’t fix the problems or renegotiate the price to cover the repairs. Some contracts will also include a clause that renders the contract void in case the homebuyer is unable to sell their current home within a specified amount of time.

While contingencies for things like conducting inspections and acquiring financing are standard, other conditions can be put into place to protect the homebuyer or seller. For instance, some buyers may stipulate in the contract that the house must come with certain appliances or agree in writing that certain items must stay. The seller also has the option to counter such requests and use contingencies to their advantage.

Making an offer on a pending listing

If the buyer’s only contingency is related to financing, inspection, or other standard condition, contingency offers are generally shown as “pending” rather than “contingent” in real estate listings.

Most experts agree that making an offer on a pending listing will likely lead to disappointment. But even pending sales can fall through sometimes due to factors beyond the buyer’s control. It is important to know the conditions involved in the sale. If the sale is dependent on the buyer selling their current home, sellers may accept other offers. In contrast, home appraisal and inspection contingencies rarely result in failed deals.

The best advice is to place an alert on the pending listing should the transaction fall apart. If you still want to put in an offer, consider writing an offer letter outlining your reasons or strengthen your bid with fewer or no contingencies if you feel comfortable with it. Beware, however, that waiving contingencies is a risky move, so make sure that you have a way out of the contract.

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