A contingency clause is something you insert into a real estate contract to allow you to back out if you encounter last-minute problems. If you do not put them in, you may have no choice but to proceed or face costly consequences.
While you should obviously do your homework before signing a contract to buy property, it’s not always possible to predict everything, and you do not want to spend money on surveys only for someone else to take the house from under your nose. Hence the need for contingencies – I agree to buy, provided this does not happen.
Here are three to consider:
#1. Financing contingencies
Most people need a mortgage to buy a house, and existing homeowners will probably need a buyer for their existing property too. If either of those fails, which they can, you may be need to withdraw your offer.
#2. Title contingencies
What if you discover that Mr. J.P. Morgan, who is trying to sell you the house is not the same J.P. Morgan that owns it? Or that he only partly owns it, and his brother, J.C. Morgan, who inherited the other half, does not want to sell.
Title contingencies may also allow you to back out over more minor issues, such as discovering that the line of fruit trees you believed would be yours actually belongs to the neighbor. It’s just that someone put the fence in the wrong place.
#3. Structural problems
You should always commission a survey so that you understand what, if any, repairs you may need to make. Surveyors can also spot problems, such as if the house sits on an old landfill site that is now releasing toxic gases.
Getting legal help to close on a home increases the chance you include all the contingency clauses you need.