Contingencies in real estate contracts define circumstances that permit a buyer to cancel the deal. They also stipulate what happens to buyer deposits if they decide to cancel. After agreement between the buyer and seller, and finalization of the contract details, the contract gets ratified. Contingency deadlines commence from ratification day.
Contingency Types:
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Home Inspection Contingency: Also known as Due Diligence Contingency, this allows a buyer to inspect the home within a set period (typically 7-10 days), enabling them to cancel the contract, negotiate for necessary repairs, or obtain a credit. If a consensus can't be reached, the buyer may void the contract within this contingency period.
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Appraisal Contingency: This ensures that the home's value is at least equal to the sale price as assessed by the lender. If the appraisal is lower than the selling price, the buyer can ask for a reduced price or cancel the contract if the seller refuses to lower it.
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Finance Contingency: Also known as Mortgage Contingency, it protects the buyer from losing their deposits if they fail to secure a loan. The buyer and seller usually agree on a timeframe (often 21-30 days) for the buyer to obtain a loan.
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Home Sale Contingency: Many people sell and buy homes concurrently. A Home Sale Contingency makes the transaction reliant on the sale of the buyer's home. If the buyer's home doesn't sell within the specified period, the contract can be terminated.
Contingency timelines generally range from 10 to 30 days, but can be adjusted based on negotiation. Buyers wishing to shorten these periods should consult their lenders and home inspectors regarding timeframes for loan approval and inspection reports.
Contingencies are removed once agreed terms are met. For instance, if the seller agrees to the Home Inspection Contingency, it's removed. If not, the buyer can proceed with the contract, offer a counter-proposal, or void the contract without penalty. The party making the contingency (usually the buyer) can default on the contract if the contingency isn't met. In cases of disagreement, real estate agents often negotiate a compromise.
