What is a Contingency?

What Contingencies Are in My Purchase Contract? By: Sarah Vance

Does Your Purchase Contract Protect You?

To start we should answer the question, what is a contingency in real estate? It is a condition or action that must be met. The contingency clause essentially gives parties the right to back out of the contract under certain circumstances without legal consequences.

Contingencies for a real estate contract are put in place to protect the buyer when they enter into a purchase contract to ensure that before close of escrow, they are satisfied with all aspects and conditions of the property. In a standard purchase agreement, the following contingencies are the most common:

1. Loan contingency giving the buyer time to obtain financing for the purchase of the property.

2. Appraisal contingency protects the buyer by ensuring the property is valued at a minimum, specified amount.

3. Physical inspection/buyer’s investigations, also referred to as due diligence, gives buyer the right to have the home inspected within a specified time period.

4. Sale of buyer’s property which allows the buyer to place their home for sale so that the escrows may work in tandem with one another.

Sellers may also have contingencies in place such as:

1. Finding a replacement property

2. Closing on a replacement property

There are other contingencies that may apply if the buyers and sellers agree to those circumstances during negotiation period.

The contingency removal period (ie: the removal date) is negotiable between the buyer and seller before signing of the purchase agreement. For this reason, the shorter the contingency period is more favorable for the seller because the sale may move forward more quickly without the buyer having opportunity to withdraw from the contract. On the other hand, a longer contingency period is favorable for the buyer because they have more time to ensure the property is the right fit for them.

Choosing the correct negotiation stance can be a tricky business when you are trying to bring two parties into a purchase agreement that is favorable to both sides. If you find yourself in need of new, or refreshed, negotiation techniques you may want to seek guidance from a real estate mentor. REeBroker Group has an amazing Mentor Program with a team that will assist you step-by-step in all thing’s transaction related including negotiation tactics for listing, purchase and services. For more information, check out their website here: https://reebroker.com/MentorshipOnlineAgreementForm.aspx.

Next week we’ll be discussing contingency removals and what that means for your real estate transaction.

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