In real estate, a “contingency” refers to a condition of the Purchase Agreement that needs to occur in order for the transaction to keep moving forward. As the buyer, there are many contingencies that you can choose to include in your contract. Here are five most common.
Inspections are for the benefit of the buyer. The home inspection covers a general examination of the interior and exterior of the home, as well as its systems. However, there are several other inspections that fall under this contingency, such as ones for mold or damage from wood-destroying insects. Once you’ve completed all your inspections, you’ll receive reports for all the inspections you’ve elected, as well as recommendations on how to remediate the home’s problems. You’ll then have the opportunity to negotiate with the seller on repairs. If you can’t reach an agreement, or if you simply feel that the home needs too much work for you to handle, you can walk away from the sale.
This contingency gives you time to apply for and receive a loan in order to purchase the home. It says that, if for some reason you’re unable to receive financing, you have the right to look for alternative sources or to back out of the sale. Your financing is not set in stone, a pre-approval is not a guarantee of a loan. From there, you still have to go through the underwriting process.
The appraisal contingency goes hand-in-hand with the financing contingency. In fact, receiving a satisfactory appraisal is usually one of the conditions that the mortgage company has for granting you a loan. An appraisal determines the fair market value of the home. The appraisal contingency ensures that you’re protected if the sale price doesn’t fall in line with whatever the fair market value is determined to be. If there’s a difference you’ll be able to renegotiate the sale price with the seller or to find additional financing. However, if both those options fall through, the appraisal contingency allows you to back away from the deal, unscathed.
In real estate, the title to a home is the record of its ownership. It’s a legal document that shows who has owned the home, past and present. It’s also a record of any liens or judgments that have been made against the property. In a typical scenario, a title company or your attorney will review the title on your new home before closing and resolve any issues so that the title can be transferred to you free and clear.
Home Sale Contingency
As a buyer this contingency allows you a specified amount of time to find a buyer for your current home. If you can’t find a buyer within that time, you have the freedom to walk away from the sale with your earnest money still intact.