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It's Contingent! What is? Your Home Purchase or Sale in Northern Virginia

By
Real Estate Agent with RE/MAX Allegiance, Managing Broker/Branch Vice President

Contingent

There's the dictionary definition of contingent.

Whether you're buying a home or selling a home in Northern Virginia, you're likely to have a contingent contract and need to understand the different contingencies that may exist.

In essence, a contract contingency is a mutually agreed upon escape clause that allows one of the parties to the real estate deal to unilaterally terminate the contract without penalty.  The Regional Sales Contract in Northern Virginia (which is generally used in D.C.) contains a number of contingencies that can affect buyers and sellers of homes.

The most prevalent contract contingencies are the following:

  • MortgageFINANCING -- These clauses make the contract dependent upon the purchaser getting approved for the mortgage financing for which they apply.  Unless purchasing a home for all cash, a buyer will need a mortgage loan.  If they cannot be approved for financing, they will not be able to buy the house.  This contingency protects the buyer to be able to withdraw from the contract after a specified number of days if they cannot be approved for a mortgage.




  • APPRAISAL -- An appraisal is a third party independent professional opinion as to the value of a home.  Every lender requires an appraisal to be completed before they will proceed with lending money.  The mortgage lender bases their lending decision upon the appraisal number and will only loan up to the amount of the appraisal or the sales price, whichever is lower.

What happens if an appraisal comes in lower than the sales price? There are several options for the buyer:

  1. Buyer can proceed with purchase regardless of appraisal value.  The buyer will have to bring extra cash to the table to be able to buy the house.

  2. Buyer can ask the seller to lower the sales price to the appraised value and seller can agree to do so.  More often than not, especially in a market with declining values, we see this option happening.

  3. Buyer and seller can negotiate a sales price somewhere in between the previously agreed upon sales price and the appraisal amount.  This too happens regularly.

  4. If the buyer asks the seller to lower the agreed upon sales price and the seller flat out refuses, the buyer can void the contract.

 

 

 

 

 

  • Home Sweet HomeSALE OF HOME -- If you are buying a home, but first need to sell your home, you'll need to use the Sale of Home contingency.  This provides you with an out from the contract for the new home if your current home does not sell.

    On the flip side, if you are the seller, you may have a "choice of home" contingency so that until you find your new home, you may not be held liable to consummate the sale of your home.

 

 

With contingencies, there's always the chance that a sale will fall through.  When searching the MLS, you'll see contingencies marked as CNTG/KO, or CNTG/NO KO -- kickout versus no kickout.  That's a discussion for another day and another blog post.

When it comes to contingencies and your rights and obligations under a contingent contract, it is advisable to discuss the implications with an informed real estate professional and/or a real estate attorney.

Oooh... I happen to be both. :)

Comments (21)

Margaret Goss
@Properties - Winnetka, IL
Chicago's North Shore & Winnetka Real Estate

It is a good post and worthy subject of discussion since buyers really don't know about all the nuances of contingencies.

Aug 26, 2009 10:00 AM
Carol Pease
JP & Associates Realtors - Bastrop, TX
CRS, Broker-Associate 512-721-6320

Brian:

Great post,  congratulations on the feature.  The title caught my eye and dragged me in.  I wasn't sure if you were trying to sell all of Northern Virginia?  Many of the contracts we use need explanations for the buyer and again for the seller.  It is our job to explain those contingencies so everyone is on the same page.

Aug 26, 2009 10:26 AM
Damon Gettier
Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA
Broker/Owner ABRM, GRI, CDPE

Brian I think we spoke on the phone once when my offices were still with Allegiance.  Your posts are always informative and well written. 

Aug 26, 2009 11:26 AM
Michelle Gibson
Hansen Real Estate Group Inc. - Wellington, FL
REALTOR

Brain - This is an excellent break down and explanation of the different types of contingencies.  Congrats on the feature!

Aug 26, 2009 11:44 AM
Nancy Conner
Olympia, WA
Olympia/Thurston County WA

Congratulations - what a nice easy-to-understand explanation of contingencies!  Great job!!

Aug 26, 2009 11:59 AM
Joseph "Cathan" Potter
Coldwell Banker - Sebastopol, CA

Great explanation.  The "choice of home" contingency is a new one to me, don't have such a thing on our standard forms.

Aug 26, 2009 12:06 PM
Jay Markanich
Jay Markanich Real Estate Inspections, LLC - Bristow, VA
Home Inspector - servicing all Northern Virginia

Um, I like the home inspection part!

Aug 26, 2009 01:02 PM
Celeste "SALLY" Cheeseman
Liberty Homes - Mililani, HI
(RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE

As usual..you da man!  Hey Brian...geez...we better start emailing hello's...hard to find each other nowadays :)

Aug 26, 2009 01:41 PM
Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239
Real Estate One - Commerce, MI
Michigan homes for sale ~ yesmyrealtor@gmail.com

Right now here in Michigan they aren't taking many home sale contingencies.

Aug 26, 2009 01:50 PM
Renee Thompson
Premier Sotheby's International Realty - Tampa, FL

Brian,

This is right on time. It can all be very confusing. I was just explaining the various contingencies yesterday, as well as the Kickout/No Kickout. Thanks for the great post.

 

Aug 26, 2009 02:19 PM
Vickie McCartney
Maverick Realty - Owensboro, KY
Broker, Real Estate Agent Owensboro KY

Hi Brian~ How convenient for your clients that you are both a informed real estate professional and a real estate attorney!  I think it is great.  Thanks for sharing all of these contingencies with us and the consumers!

Aug 26, 2009 02:40 PM
Patricia Kennedy
RLAH@Properties - Washington, DC
Home in the Capital

Brian, it's amazing some of the contingencies that are so far outside what the boiler plate contemplates.

REally good post!

Aug 26, 2009 03:38 PM
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

Hi Brian -- Excellent advise, especially since you are a real estate attorney as well.  Your clients are well served with your background.

Aug 26, 2009 03:42 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

A nice, clear, concise explanation of a very important concept in real estate contracts.

Aug 26, 2009 05:20 PM
Irene Kennedy Realtor® in Northwestern NJ
Weichert - Lopatcong, NJ

Brian,

We can always count on you for great yet clear explanations.  Can't tell you the number of times I've had to explain to agents that Subject to third party approval (short sale) is also a contingency. Many erroneously think it isn't a contract prior to bank approval of the offer...

Aug 27, 2009 01:09 AM
Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

That last one is a big one. I recently had a sale bust that was not contigent upon the buyers home selling. We pointedly asked if the buyers could perform, and the realtor said yes, and the pre-approval said yes. 4 days before closing they asked for a 1 month extension becasue they needed to sell or lease their house. No clause can protect the seller here. Now we are asking for the earnest money to be forfeited to the seller, but that can't make up for 45 days lost in marketing, and now school has started. Doesn't happen often but it does put a premium on that world, trust. 

Aug 27, 2009 01:30 AM
Patricia Aulson
BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate - Exeter, NH
Realtor - Portsmouth NH Homes-Hampton NH Homes

ha.....great information here.  Thanks for getting it out to us on AR today

Patricia Aulson/portsmouth nh homes

Aug 27, 2009 01:48 AM
Kathleen Lordbock
Keller Williams Realty Professionals - Baxter, MN
Keller Williams Realty Professionals

All states are a bit different but very interesting on how they handle all these maybes.

Aug 27, 2009 02:22 AM
Sonja Adams
Keller Williams Realty - Purcellville, VA

Brian - there are so many contingencies that are confusing to both buyers and sellers...this is a great breakdown on the major ones.

Aug 27, 2009 05:43 AM
Anna "Banana" Kruchten
HomeSmart Real Estate - Phoenix, AZ
602-380-4886

Brian this is really good post!  Easy on the eyes to read and easy for clients to understand.

Aug 27, 2009 10:17 AM