Home purchases are complex undertakings that require buyers and sellers to uphold specific conditions that are present in contract. Within that contract are often contingencies, which are conditions that must be satisfied before the purchase can occur.
Contingencies protect buyers and sellers by setting clear expectations from the start of the transaction. The contract may also specify what happens if one of the terms isn’t met. These clauses often have to do with the financing, inspections, appraisals, the title, insurance or the sale of another property.
Why are contingencies important?
Contingencies are important because they’re legal obligations. For example, if a problem obtaining financing occurs, the buyer could lose their earnest money if there isn’t a financing contingency in place. The seller would be free to sell the home to someone else if the buyer’s financing doesn’t work out.
There are a variety of contingencies that can be included in these contracts. Inspection and appraisal contingencies are both important. The inspection contingency allows the buyer to request repairs, negotiate a credit, cancel the purchase or accept the property as is. The appraisal contingency addresses what happens if the home doesn’t appraise for the purchase price.
Contingencies must be tailored to meet the needs of the buyer and seller. Because they shape the rights of both parties before the closing, it’s critical that both parties fully understand their rights and responsibilities. Working with someone familiar with real estate purchases may make the process easier, particularly since that individual can help to ensure all documents are set up in a way that reflects the best interests of the party they’re working with.