If you’ve ever bought or sold real estate, you’ve probably heard of contingencies. In the most basic terms, a contingency is a specific requirement that must be met in order to make a real estate contract final. The most common reason a buyer or seller requests a contingency is for their own protection—to ensure that certain conditions are in place before they sign. Here, I’ll walk you through some common contract contingencies that are added to real estate transactions.
If you’re the buyer…
Requesting contingencies gives you an escape route; Think of it this way: Each contingency creates an additional hoop to jump through before the deal closes. Contingencies can be added to give you extra time to reconsider the deal, or simply ensure that it happens on your terms.
Common Buyer Contingencies
Buyers often request a specific mortgage contingency, which means that if the rate and terms you’re looking for aren’t approved, you don’t have to move forward. Inspection and insurance contingencies are also common. For example, if a major issue is found during the inspection, or the insurance is denied because the home sits on a fault line, the buyer has a chance to back out of the deal.
In addition to contingencies that require meeting specific terms, some are essentially just deadlines to keep the process moving. These types of contingencies set dates by which the inspection, repairs, or any lien/title insurance issues need to be resolved by. Your real estate agent should walk you through the standard contingencies to request in your contract, as well as suggesting any others that might benefit you. If the sellers have included contingencies, your agent should explain those in full to you as well.
If you’re the seller…
Adding contingencies can allow you more time to close on the home you’re moving to before you sell this one, as well as time to consider whether you really want to part with your current home. They can also define the terms of the deal in order to require what’s most beneficial to you, such as an all-cash buyer. But here’s the catch: Too many contingencies may turn buyers off, so it’s important to weigh the pros and cons with your real estate agent before deciding—especially if your home has been on the market for a while, or you lack other offers.
Common Seller Contingencies
Most buyers are concerned about the home financing and inspection terms more than anything else, so sellers have some wiggle room outside of these areas to make some demands. Sellers typically focus on contingencies defining how long they have to vacate the home, or even a lease-back option to “rent” the home from the purchaser in the event that more time is needed after closing. Aside from that, sellers are mostly focused on a strong offer by a well-financed buyer, and won’t add too many other specifics to most contracts.
The bottom line: If you have plenty of offers lined up, or you’re in no rush to sell, contingencies are a great way to define the terms of the deal in your best interest. But if you’re looking to sell quickly or have a strong offer, it’s not always wise to start making contingency demands that aren’t truly necessary. This is where having an experienced agent can really make the difference and ensure you get a great deal and an easy closing in the end.