All about contingencies
Contingencies play a crucial role in the home buying process as they allow buyers to protect themselves (and their earnest money!) from potential risks and back out of a purchase contract if certain conditions are not met. Here's an overview of how contingencies work when buying a home:
Offer and Acceptance: The home buying process begins when a buyer submits an offer to purchase a property. The seller can either accept the offer, reject it, or make a counteroffer.
Contingency Clauses: In the purchase contract, the buyer can include various contingency clauses that outline specific conditions that must be met for the sale to proceed. Common contingencies include:
a. Financing Contingency: This contingency allows the buyer to back out of the contract if they are unable to secure financing for the home. It typically specifies the type of loan, interest rate, and loan amount required.
b. Inspection Contingency: This contingency permits the buyer to have a professional inspection of the property, such as a home inspection and sewer scope. If issues are discovered that the buyer is not willing to accept, they can negotiate repairs or request that the seller make concessions, or they may withdraw from the contract.
c. Appraisal Contingency: This contingency states that the buyer's lender must appraise the property at or above the agreed-upon purchase price. If the appraisal comes in lower, the buyer may have the option to renegotiate the price, bring additional funds to the table, request the seller to lower the price, or terminate the contract.
d. Title Contingency: This contingency ensures that the property has clear and marketable title. If there are any title issues, the buyer may request that the seller resolves them before proceeding with the sale.
e. Home Sale Contingency: If the buyer needs to sell their current home before purchasing the new one, this contingency allows them to do so. It often has a time limit for selling the existing property.
f. Lead-Based Paint, and Other Contingencies: Depending on the location and the property's age, there may be additional contingencies related to environmental hazards, lead-based paint, or other factors.
Timelines: Contingencies typically have specific timelines attached to them. For example, the inspection contingency might give the buyer 5 days to complete the inspection and negotiate any repairs. If the conditions are not met within the specified time frame, the buyer may have to waive the contingency or request an extension.
Waiving or Removing Contingencies: If the buyer is satisfied with the results of the inspections, appraisal, financing, and other contingencies, they can waive or remove them. Once contingencies are waived, it becomes more difficult to back out of the contract without potentially losing their earnest money deposit.
Closing the Deal: If all contingencies are met or waived, the sale can proceed to closing, where the final paperwork is signed, and ownership of the property is transferred from the seller to the buyer.
Contingencies provide important safeguards for home buyers, allowing them to make informed decisions and protect their interests in the purchase process. It's crucial to understand the contingencies in your purchase contract and work closely with your real estate agent and attorney to navigate them effectively.
