Photo by Gabrielle Henderson on Unsplash
Today we wanted to discuss contingencies! What they are, how they work, and how you can be informed and prepared when navigating a more complicated transaction that contains them.
What are Contingencies?
Contingencies are specified and set conditions or events must be met before a real estate transaction can be finalized and are crucial for protecting both buyers and sellers alike. They can include items like home inspections, financing, appraisals, and sometimes the sale of the buyer's current home. If any of these conditions are not met, the sale may be delayed or even canceled.
For buyers, contingencies offer essential protections. They can ensure that the property is in good condition and that the value matches the purchase price among other things. Without these protections, buyers may be at risk of purchasing a property that is in poor condition, overpriced, or unaffordable. For sellers, contingencies can offer a level of security by ensuring that the buyer is committed to the purchase and has the proper financing to complete the transaction.
Here are 4 common types of contingencies that you may encounter:
Appraisal Contingency
An appraisal contingency is a provision in a real estate contract that protects the buyer from overpaying for a property. With this contingency, the buyer can cancel the contract or renegotiate the purchase price if the appraisal report comes in lower than the agreed-upon sale price. This contingency is important because it ensures that the buyer is not stuck paying more than the market value for the property.
Inspection Contingency
An inspection contingency is a clause in a real estate contract that allows the buyer to have the property inspected before the sale is final. The buyer has the right to hire an inspector to evaluate the property's condition and report any issues or defects. If the inspection uncovers major problems, the buyer may have the option to cancel the sale, ask the seller to fix the issues or renegotiate the sale price.
Sale Contingency
A sale contingency is a provision in a real estate contract that makes the sale of a property contingent upon the successful sale of another property. This contingency is commonly used when a buyer needs to sell their current home before they can purchase a new one. If the buyer is unable to sell their current property, the sale of the new property will not proceed.
Funding Contingency
A funding contingency is a clause in a real estate contract that makes the sale contingent upon the buyer securing financing to purchase the property. This contingency protects the buyer from being obligated to purchase the property if they are unable to obtain financing. If the buyer is unable to secure financing, the sale will not proceed, and the buyer will not be liable for breach of contract.
How an Agent can help
A real estate agent can be a valuable asset for both buyers and sellers when navigating a real estate transaction with contingencies. They can negotiate on their client's behalf, allowing the clients to focus on other aspects of the transaction while being assured that they getting the best deal possible and not being taken advantage of. Additionally, Real Estate Agents can provide expertise and offer guidance on how to structure contingencies that are fair and more likely to be accepted.
Thinking of buying or selling a home but not sure where to begin? Our team at Salas Real Estate is happy to answer questions, discuss your needs and help find the perfect home for you.
