In the Palm Springs California Desert where I represent buyers and sellers, contingencies can make or break the sale! When you make an offer on a property, there will be several contingencies written into the contract. Others may be added. What are they and how do they affect the deal?
A contingency is a provision that says that certain conditions must be satisfied or certain things must happen for the sale or purchase of a property to proceed. In our area, ALL Contingencies must be removed within the first 17 days of an accepted offer. Loan contingencies must be removed within 21 days of the offer. When you are buying or selling a house, carefully written contingencies make everyone's rights and obligations clear. It is the best way to avoid disputes later.
Probably the most common contingency involves the house inspection. The buyer is strongly encouraged to have a professional home inspection. In our area, if a buyer refuses to have an inspection, they must sign a waiver stating they have been advised to have one, but have chosen not to have an inspection. The inspection will point out various things from code violations to cosmetic defects. The buyer has the right to ask for repairs to any part of the property that is defective. The seller may then agree or not, depending on the circumstances. In in many cases, contingencies can be negotiated between both parties on certain items.
I remind my buyers they are not buying a new home. They should not ask for every small cosmetic feature to be fixed. However, if the report shows some serious areas of concern, like an AC that is not working or roof in need of repair, I recommend they ask for these items to be repaired prior to closing. If the seller refuses to do any of these serious requests, the buyer can then back out of the sale. On the other hand, once the item has been noted, the seller must now disclose these previous findings to future buyers since it is now a known defect or item in need of repair. Code violations also need to be addressed at this time. Most lenders will not close unless these items have been corrected.
Another common contingency is financing. A financing contingency protects the buyer and can contain very specific details about financing, specific types of loans and so forth. A buyer might ask for a contingency that states that the seller will complete some unfinished work as promised. Another contingency you might see involves the seller's ability to buy another house. Some buyer contingencies state that the house they own be sold first. I advise my sellers not to accept this contingency unless the buyer is already in escrow, their buyer on their home has removed all contingencies, and their buyer’s loan has been approved.
I strongly advise my sellers not to accept any offers where the buyer has not been pre-approved beforehand and they can show they have ample funds to close. In our area, if a seller accepts an offer before being assured the buyer can perform, they only have three days to provide these conditions, but it is far better to have buyers approved for a loan before they start shopping for a new home. It makes the buyers offer so much stronger when they have done their homework ahead of time.
While there are no rules on how contingencies must be written, both the buyer and the seller must be happy with the nature of the contingency and with the language as it appears on the contract. There is no limit to the type or number of contingencies. Whether you're buying or selling or both, you'll probably hear about contingencies and have them added to your contract. Contingencies are an everyday occurrence in the buying and selling of real estate and serve to bring the best of the transaction to everyone involved.