When buying or selling a home, contingencies play a crucial role in protecting both parties and ensuring a smooth transaction. These conditions must be satisfied before closing, providing buyers and sellers with an opportunity to renegotiate or even cancel the contract if necessary. Here’s a breakdown of the most common contingencies in real estate and how they impact the process:
Loan & Appraisal Contingencies
The loan contingency safeguards the buyer, giving them time to secure financing. If the buyer cannot obtain a loan within the agreed timeframe, they may have the right to cancel the contract.
Similarly, the appraisal contingency ensures the property is valued at or near the purchase price. If the home appraises for less than the agreed-upon price, the buyer make up the difference, attempt to renegotiate, or choose to back out of the deal.
Inspection Contingencies
A home inspection contingency allows the buyer to conduct a professional inspection to assess the home’s condition. While this often includes a general inspection, buyers may also order specialized evaluations, such as:
- Termite and pest inspection
- Roof, pool, or solar system assessments
- Septic, sewer, and foundation evaluations
- Defensible space and fire hazard compliance
If significant issues arise, the buyer can request repairs, negotiate a credit, or withdraw from the purchase.
Reviewing Property Documents
Before closing, buyers must review seller disclosures, preliminary title reports, escrow paperwork, HOA documents, and any leased or liened items (such as solar panels). This ensures they fully understand the property’s condition, restrictions, and any future obligations tied to ownership.
Sale of Property Contingency
In some cases, a buyer’s purchase may be contingent on selling their current home before closing on the new one. If their home doesn’t sell within a specified timeframe, they may have the right to cancel the contract.
Conversely, sellers can request a contingency that allows them time to secure a replacement home before finalizing the sale of their current property.
Insurability Contingency
The insurability contingency gives the buyer time to secure homeowners insurance. If they cannot obtain coverage at an acceptable cost due to fire hazards, flood risks, or other factors, they may have grounds to withdraw from the contract.
Informational Access
While not a formal contingency, buyers are contractually granted access to the property during escrow. This allows them to take measurements, consult with contractors, and plan renovations before moving in.
Final Thoughts
Contingencies provide essential protection and flexibility during a real estate transaction. Whether you’re buying or selling, understanding these terms ensures you make informed decisions while keeping your interests secure.
If you have questions about contingencies or need guidance navigating the process, reach out to Chuck Buss & Kylie Reiter Realtors today!