Contingencies, a clause that gives either buyer or seller a way to back out of the contract if certain conditions are not met, are common in real estate contracts. For example, sometimes buyers make an offer contingent upon the sale of their existing home because they will need to sell that home prior to getting financing on the new one. For this type of a contingency there will be a time period and if the buyer is unable to sell the home in that time, the seller can opt to cancel the agreement. Typically, the seller will not accept this contingency because they will be able to find another buyer who can close the deal without selling their current home first. Sometimes new home builder will except a sale that is contingent upon an existing sale.
The possibilities for what can be included as a contingency is endless. Some of the more common contingencies are:
Financing- The sale is contingent on the buyer obtaining financing.
Home Inspections- This is the most commonly used contingency and will usually say “contingent upon satisfactory completion of inspection”. The contingency can go further and specify a multitude of specific types of inspections by a qualified home inspector. Commonly used are hidden defects, pest inspections, water and sewage system inspections, inspections for radon, mold inspections.
Appraisal- In this case, the buyer will have a contingency for an appraised value at equal to or above purchase price. Sellers will typically accept this kind of contingency because the lender will almost always want an appraisal performed too.
Contingencies are always negotiable and be sure that prior to signing you are comfortable will all provisions offered as contingencies in the contract. Be thorough and think about any contingencies you would like to add to the contract.