Think of the word "contingency" as akin to "if." When a homebuyer signs a contract agreeing to the purchase of a home, they are saying, "I agree to purchase this home for this amount of money if …" The "if" is the contingency.
Contingencies are those items that must come to pass before the sale finalizes. Contingencies in a real estate contract also represent steps along the way that allow the buyer to back out of the deal without losing her earnest money deposit or incurring a lawsuit.
Loan Approval is a contingency. It states that the buyer must act "diligently and in good faith" to obtain the loan described on the purchase and sales agreement. The loan approval contingency is one that the seller's agent will scrutinize when first going over your offer. The seller will be removing his home from the market if he accepts your offer and taking a chance that your loan will come through. The longer you take to get loan approval, the longer his home is off the market. If you end up being denied the loan, the seller has lost valuable marketing time.
Home Inspection is a contingency. The home inspection offers the buyer an opportunity to determine, through the help of a professional, if there is anything wrong with the home's structure and major systems. Most inspection contingencies state that you have the right to back out of the contract if the results of the inspection aren't satisfactory. Others may state that you can back out if the seller refuses to remedy any problems. Decide ahead of time how you want your inspection contingency worded.
Sale of the Buyer's Property is a contingency. It's often a juggling act to sell one house before you close on another. In these cases, buyers frequently make the purchase of the new home contingent on the successful sale and sucessful closing of their current home in a timeframe agreed upon by both parties.
Appraisal Contingency. Unless you are paying cash for the home, the appraisal contingency is second in importance only to the loan approval contingency. The appraised value of the home represents the maximum amount of money the lender will give you.
Your real estate agent is your best source of information on the various contingencies in a real estate contract. Follow your agent's advice about staying on task during the process so that you can formally remove the contingencies by the dates specified.
What is a Contingency?
Comments(4)