Although you are ready to embark on the exciting journey of buying a home, you should ensure that you do not end up with a property that has hidden defects or issues. Fortunately, contingencies in your real estate contract may allow you to back out of the deal or renegotiate the terms if certain conditions are not met.
With a contingency provision, you do not suffer any legal or financial repercussions from withdrawing from the purchase. However, you should negotiate for a contingency upfront, or you may not have one or more of them in your agreement to help you. Contingencies vary by transaction, but some are quite common.
Inspection contingency
This contingency gives you the right to hire a professional inspector to thoroughly examine the property. If the inspection reveals significant issues or defects that you were not aware of, you can either negotiate with the seller for repairs or walk away from the deal.
Appraisal contingency
This clause ensures that the appraised value of the property meets or exceeds the purchase price that you and the home seller have agreed to. If the appraisal comes in lower than the contract price, you can renegotiate the price or cancel the contract without penalty.
Financing contingency
This contingency protects you in case a bank denies your loan application or if the lender cannot provide the necessary funds for the purchase. It allows you to back out of the contract if you cannot secure financing within the specified timeframe, preventing you from being on the hook for funding that you cannot provide.
Home sale contingency
If you need to sell your current residence to finance the new home, this contingency gives you a specified amount of time to sell your existing property before completing the new home purchase. If your present property does not sell within the allotted time, you can cancel the contract without penalty.
Contingencies in real estate contracts are essential tools that allow you to make informed decisions and protect your investment. Although some sellers may not be eager to take you on as a buyer if you insist on some contingencies, you should still take care to safeguard your interests at the negotiating stage.
