Home Sale Contingencies
Know Your Contingencies,
Know Your Options.
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When including contingencies in your real estate contract, it's crucial to be specific in your wording to ensure your interests are fully protected. Do not rely solely on your realtor to draft or review these clauses—they may not have the legal expertise to anticipate every potential issue. Take the time to carefully read the details in your contract, understand each contingency, and consult a real estate attorney if needed. Remember, this is your investment and future at stake—it's up to you to look out for yourself and ensure the contract aligns with your needs and expectations.
Inspection Contingency
▸Also known as a "due diligence contingency," this clause gives the buyer the right to inspect the home within a specified period. Based on the inspection findings, the buyer can negotiate for repairs or cancel the contract if necessary.
Financing Contingency
▸This contingency makes the sale dependent on the buyer securing an acceptable mortgage or other method of financing. Even with prequalification or preapproval from a lender, there's no guarantee that the loan will be approved.
Appraisal Contingency
▸Lenders will require an appraiser to evaluate the property's fair market value before granting a loan. Lenders may hesitate to fund the loan if the appraisal is lower than the purchase price. An appraisal contingency allows the buyer to back out if the appraised value is lower than the purchase price. Alternatively, the buyer can negotiate a lower purchase price with the seller.
Insurance-Related Contingencies
▸Many buyers include a homeowners' insurance contingency to ensure they can secure satisfactory insurance coverage, especially in areas prone to natural disasters. Another common insurance-related contingency is requiring a title company to provide title insurance, which protects buyers from issues with property ownership.
Home Sale Contingencies
▸These provisions make the sale contingent upon the successful sale of the buyer’s current home.
Sale and Settlement Contingency
▸Used if the buyer has not yet accepted an offer on their current home. This allows the seller to continue marketing the home and gives the buyer a chance to remove the contingency if another offer is received.
Settlement Contingency
▸Used if the buyer's current home has an accepted offer but not yet closed. It prevents the seller from accepting other offers until the buyer’s home sale is finalized.
The Kick-Out Contingency
▸A kick-out clause allows the seller to continue marketing a home if they receive an offer with contingencies. This protects the seller if the buyer cannot sell their current home, allowing them to switch to a buyer who can close sooner.
Septic System Inspection Contingency
▸This clause makes the sale contingent upon the seller or buyer having the the septic system inspected and/or the septic tank or cesspool pumped by a qualified professional.
Radon Contingency
▸A clause that allows the buyer to back out if radon levels are found to be unsafe.
Pest or Rodent Contingency
▸A contingency that gives the buyer the right to have the home inspected for pests or rodents and negotiate repairs or cancel the contract based on the findings.
Mold Contingency
▸A clause that allows the buyer to conduct mold inspections and negotiate repairs or cancel the contract if mold is found.
Asbestos Contingency
▸This contingency allows the buyer to inspect for asbestos and negotiate repairs or cancel the contract if asbestos is found.
Lead Paint Contingency
▸This clause allows the buyer to test for lead paint and negotiate repairs or cancel the contract if lead paint is detected.
Wetlands Contingency
▸This contingency allows the buyer to determine if the property includes protected wetlands, which could impact the intended use of the property.
Taking the time to understand and clarify your contingencies can save you from costly surprises down the road. Protect yourself by staying informed and proactive throughout the process.
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