If you are involved in real estate dealings, contracts may involve contingencies. This is true whether you are the buyer or seller in the transaction. There are several contingencies that may appear in a contract. What is a contingency? And what are common contingencies in a real estate contract?
The easiest way to understand the concept of a contingency is to think of it as a life saver to protect the party placing the contingency. If you think of the real estate contract as a boat, you would want a radio in case of distress, a life preserver in case you fall over board, a fire extinguisher in case of fire, etc. Buyers and sellers place contingencies into contracts to protect themselves in case of something unforeseen happens, much the same way sailors place safety items in a boat. The contingency protects them. Common contingencies are listed below.
Financing contingency: this contingency is placed by the buyer obtaining a mortgage. Simply put, if the loan is not permitted by the lender the contingency allows the buyer flexibility and safety to exit the contract.
Appraisal contingency: this will accompany most every contingency for financing. Simply put, the appraisal clause will protect the buyer (and the lender) if the appraisal comes in below the purchase price or if the appraiser attaches conditions to the appraisal.
Home Inspection Contingency: buyers routinely have a limited time to inspect the property in thorough manner. Generally, a professional is hired to look more deeply at the systems of the home to establish a better understanding of the condition. Buyers commonly use this opportunity to share newly discovered flaws with the seller to seek redress.
Home sale contingency: a buyer would use this contingency to tell the seller, he/she cannot perform unless and until he/she sells the current home. Most commonly, this has a timeline attached to it.
Home purchase contingency is the reverse of the former. A seller announces to a buyer, he/she will not sell the house unless and until, he/she finds a suitable replacement house.
POA contingency: Property Owners Associations (POA) have binding rules and regulations. They also may require an owner to perform certain repairs, pay certain fees to join, etc. A buyer will use a POA contingency to fully review the disclosure packet and have the flexibility to exit the contract based on the review. The review period is generally limited to a short time frame.
There are also contingencies for utilities such as well water and septic fields. These systems are tested to make certain the buyer will have potable water and a functioning waste water system. Often they are required by the lender.
There is a contingency for wood destroying inspects and moisture problems. Commonly these reports look for termites, beetles, ants, bees, etc. that destroy the home.
These are just some of the common contingencies in real estate contracts in my region. Contingencies can be added to fit unique situations for buyers and sellers. Always consult a Realtor for advice on real estate. It is important to note that all terms of a contract must be agreed upon on by the buyer and seller. It is best to have these agreements in writing. Your Realtor will have forms with many and most of these contingencies built into the paperwork. The contingencies protect the buyer, seller, and even the lender in a real estate transaction.
Bobby Jankovic, Broker/Owner
1166 Jamestown Rd. Williamsburg, VA 23185
Licensed in Virginia #0225055091
cell (757) 291-1114