1. Common Contingency Clauses
Several standard contingencies are typically included in real estate contracts:
- Financing Contingency: Allows the buyer to cancel the contract if they are unable to secure a mortgage loan within a specified period.
- Home Inspection Contingency: Permits the buyer to have the property inspected and negotiate repairs or withdraw from the deal if significant issues are discovered.
- Appraisal Contingency: Ensures the property’s appraised value meets or exceeds the purchase price; if not, the buyer can renegotiate or exit the contract.
- Sale of Existing Home Contingency: Makes the purchase dependent on the buyer selling their current home, protecting them from owning two properties simultaneously.
- Title Contingency: Requires a clear title to the property; if title issues arise, the buyer can back out of the agreement.
2. Timeframes and Deadlines
Each contingency clause includes specific timeframes within which the conditions must be satisfied
- Financing Contingency: Typically ranges from 30 to 45 days for the buyer to obtain loan approval.
- Inspection Contingency: Usually allows 7 to 10 days for the buyer to complete inspections and request repairs.
- Appraisal Contingency: Often set within the same period as the financing contingency, ensuring the appraisal aligns with loan approval timelines.
Adhering to these deadlines is crucial; failure to meet them can result in the contract becoming void or the forfeiture of earnest money deposits.
3. Negotiating Contingencies
The inclusion and terms of contingency clauses are subject to negotiation between the buyer and seller:
- Buyer’s Perspective: Buyers may seek to include multiple contingencies to safeguard their interests, especially in uncertain market conditions.
- Seller’s Perspective: Sellers might prefer fewer contingencies to expedite the sale process and reduce the risk of the deal falling through.
In competitive markets, buyers may choose to waive certain contingencies to make their offers more attractive, though this increases their risk. Conversely, in a buyer’s market, sellers may be more accommodating to contingency requests