What is a real estate contingency?

Answer:

A contingency is a condition written into a contract and allows the buyer to walk away if the condition is not met as well as keep their earnest money.

What is a real estate contingency?

Think carefully before you sign a contract with a contingency. As a seller, contingencies muddy the water. The fewer a contact contains, the better.

Anything can be written into a contract as a contingency.

The most common contingencies in real estate are the Option Period (see below) and the Addendum For Sale of Property by Buyer. This allows the buyer to cancel the sale if their own home does not sell first.

Click here for a pdf version of the Addendum For Sale of Property by Buyer.

***In this situation, the seller is smart to include a condition of their own that allows them to accept back up offers.***

Click here for a pdf version of the Addendum for “Back Up” Contract.

PDF Versions of Common Types of Real Estate Contingencies:

Third Party Financing Addendum

HOA Addendum

Mold Addendum

On-Site Septic Addendum

Flood Hazard Addendum

Other Useful Contingencies:

The Option Period

Allows the buyer to inspect the property. It defines a set period of time in which the buyer can perform an inspection, do a walk-through or have an appraisal done. If problems crop up, the buyer can get estimates from contractors and then negotiate the details as to who will pay for what. If the buyer and seller cannot come to an agreement, it allows the buyer to cancel the deal.

Click here for more information about the Option Period.

Click here for more information about what to look for during a walk-through.

Appraisal Contingency

States the property has to appraise for the purchase price or the buyer can back out. Some buyer’s will wave this contingency to “appear” more aggressive but if they are financing the purchase, every lender will require an appraisal to fund. The lender will approve the loan amount for the appraisal price, not the contract price.

***FHA and VA loans specify that certain approved repairs must be corrected by the seller before they will fund the loan. See lender required repairs in paragraph four of the 1-4 Family Residential Contract.***

Click here for more information about lender required repairs.

Click here for a pdf version of the 1-4 Family Residential Contract.

Financing Contingency

Covers a buyer in the event that they cannot secure financing from a lender to cover the cost of the property. See paragraph four of the 1-4 Family Residential Contract in conjunction with the Third Party Financing Addendum. This contingency will specify the kind of financing that the buyer expects to receive approval for. It includes terms such as the interest rate, the lender (VA, conventional, FHA), as well as the down-payment amount.

Click here for a pdf version of the 1-4 Family Residential Contract.

Still not sure?

When it comes to contingencies, contracts and addendums, both buyers and sellers need the guidance of a licensed real estate agent. As outlined in our Transaction Guide, the forms are extremely complicated and information dense. A mistake in even one section can easily lead to costly legal problems and or lawsuits.”

Click here for more info on our Full Representation Option.

By | 2015-04-15T02:36:52+00:00 April 15th, 2015|Contract Questions|