Once an offer to purchase a home has been accepted, a binding contract is created. However, more often than not, the 1. a. An event that may occur but that is not likely or intended; a possibility. b. A possibility that must be prepared for; a future emergency. 3. Something incidental to something else. The Colorado Contract to Buy and Sell Real Estate (“Colorado Contract” for short) contemplates a number of possible contingencies. This is the first of a series of posts about these contingencies, so let’s start with the contingency most likely to break a deal: the inspection contingency. In the Colorado Contract, you’ll see two deadlines relating to inspections: the Inspection Objection Deadline and the Inspection Resolution Deadline. Before the Inspection Objection Deadline, the buyers can bring in various inspectors to run tests on the property. The run-of-the-mill inspections here tend to be a general inspection, sewer line, and radon test. If the general tests indicate possible bigger problems, the buyers can bring in specialized inspectors, like a roof inspector or a structural engineer. If any problems are found, the buyers then have a choice: try to get the sellers to fix the problem, or terminate the contract. If the buyers choose to ask the sellers to fix the problems, they will submit a Notice to Correct to the sellers. If the problems in the inspection are more than the buyers want to take on, the buyers must present a Notice to Terminate to the sellers in writing. Under the Colorado Contract, the buyers may give a Notice to Correct or a Notice to Terminate based on a broad range of problems discovered - everything from the physical condition of the property to things such as construction projects, odors or noise. Since the inspection is based on whether or not these things are unsatisfactory from the buyers’ subjective point of view, the inspection contingency leaves a wide door open for the buyers to terminate the contract.
completion of the contract is dependent on a number of conditions, or contingencies. I like the definition of “contingency” that is provided by answers.com, which says a contingency is:
Colorado Inspection Contingency
2. The condition of being dependent on chance; uncertainty.
This definition certainly applies to contingencies in a real estate contract. Although buyers (most of the time) hope that nothing will cause the deal to go south, if, in the course of their due diligence, they discover an unexpected problem, contingencies provide them with a way out of the contract or a reason to amend the contract.
If a Notice to Correct is received by the seller, and the buyer and seller haven’t agreed in writing on how to deal with the Notice to Correct on or before the Inspection Resolution Deadline, the contract automatically terminates one day following the Inspection Resolution Deadline. The exception to this is if the seller receives a written withdrawal of the Notice to Correct from the buyer.
If you get past the inspection deadlines smoothly, chances are much higher that the property will be closing as planned . . . but there are still some potential minefields. Stay tuned for the next post on Colorado Contract contingencies!
Image attribution: thanks to Mike "Dakinewavamon" Kline on Flickr for this awesome illustration: http://www.flickr.com/photos/mikekline/864978176/
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