Offer Contingencies: An Overview

When starting out your real estate career, it is easy to become overwhelmed with the massive amount of paperwork, questions, and terms that suddenly seem surround you. One of the questions that real estate newbies tend to ask is about the term “contingencies”. What exactly does it mean? How does it impact your potential real estate transaction?

For those who aren’t familiar, a contingency is basically a stipulation (which it is sometimes called) that is added to your contract. A contingency is a statement that will allow you to back out of the deal without any sort of penalty so long it takes place under specific circumstances. While some contingencies, like a home inspection, are considered to be quite normal, they are often used by buyers who aren’t 100% convinced they’re ready — or able — to buy the property in question. By having contingencies in the contract these potential buyers are able to buy some extra time to sort everything out.

Here are some Common Contingencies Found in Real Estate Contracts

Financing Contingency:

Financing is one of the most common types of contingency. Basically, it says that your offer is contingent on you being able to procure financing for the property. It will often be specific about the sort of financing (eg: Conventional Loan), as well as the terms (interest rate, down payment, etc), and the time period.

Sale of Current Property Contingency

This is perhaps one of the most tricky contingencies on this list. However, it has also become more common these days among homeowners looking to upgrade their current house. This contingency basically says that the Buyer in question has a right to back out of the deal should he or she not be able to sell their current residence. Generally, the contingency will call out a time period for which the contract is in effect, thus giving the Buyer that amount of time to sell his other property.

Sale of current property is without a doubt among one of the riskier contingencies to put in an offer. While it does make sense if you are still in the selling process, it is not uncommon for this type of contingency to scare a seller away.

Mold Inspection Contingency

Depending on the property that is in question, and the state that it is in, a mold inspection might be suggested by either the real estate agent, the potential buyer or a third party. This is not the most common contingency to be faced with, however, having mold can be an expensive and time-consuming problem. If you (or another party) suspects it, it might be worth looking into for both you and your families health and wallet.

In addition to the three kinds of contingencies described above, there is a multitude of others out there for almost any given situation. Other Common Types of Contingencies include

  • Home Inspection Contingency
  • Appraisal Contingency
  • Sewer Inspection
  • Well Inspection
  • Home Owners Association Documentation

Tips for Using Contingencies

While having a contingency in your offer is not necessarily a bad thing, having too many is an easy way to move your offer towards the bottom of the pile – sellers want to sell their home for the highest price and the lowest headache.

Here are three tips for using contingencies in the best ways possible

  1. Whenever possible, limit your offer to ONE contingency.
  2. Do not necessarily walk away if a contingency is not met – use it as a negotiation tool.
  3. Only add a contingency when absolutely necessary.

 

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