Contingency contracts contain certain criteria that must be met before a real estate transaction is finalized. Failing to satisfy these conditions could prevent the sale of a home from moving forward. It is always a good idea for both sides to have their real estate attorneys review the contract so that each fully understands what their responsibilities are in meeting any contingency requirements.
Here are some of the most common contingencies that might be found in a real estate sales contract.
This contingency protects the buyer in case he is unable to obtain financing. Being pre-approved is not a guarantee that a mortgage will be approved. If a buyer cannot satisfy the financial requirements of the mortgage company’s underwriter, his loan request could be denied. When this happens, the buyer can walk away.
A mortgage company will require a satisfactory appraisal of the home before signing off on a mortgage approval. The money borrowed cannot be more than the fair market value of the home. The buyer and seller could renegotiate the price, or the buyer could pay the difference. If an agreement cannot be reached, the buyer can walk away from the sale.
A home inspection is crucial for getting a clear picture of what type of condition a home is in. It could uncover problems such as:
- Mold and water damage
- Termite damage
- Foundation problems
- Leaking roofs or basements
An inspection contingency could allow the buyer and seller to negotiate how to handle these problems. However, if both parties cannot reach an agreement, the buyer can walk away from the sale.
A title commitment is a legal record documenting a property’s ownership. A title search must be conducted by a title company or real estate attorney prior to the sale of a home. This ensures that there are no liens or judgments against the property. If issues are found, they must be resolved for a clean transfer of title. But if the problem cannot be resolved, the buyer can walk away from the sale.
Home Sale Contingency
This contingency benefits the home buyer in that he can walk away with his earnest money if he is unable to find a buyer for his current home. It is not used much anymore because it gives little assurance to a home seller who could be inconvenienced if suddenly a sale does not go through.