In any real estate transaction, several contingencies must be met for the sale to go through. These contingencies are put in place to protect the buyer and the seller, and can vary depending on the state you’re buying or selling in. In this blog post, we’ll explore all the different types of real estate contingencies you might encounter during your transaction. We’ll discuss why they’re in place, how they work, and what role your agent plays during this time. Let’s get started!
A contingency period is a set amount of time during the home-buying process when the buyer has the right to cancel the contract for certain reasons. This gives buyers peace of mind knowing they can back out of the deal if something goes wrong, without losing their earnest money deposit.
Several common contingencies are included in most real estate contracts, including:
Each of these contingencies will be discussed in more detail below.
Real estate contingencies exist to protect both the buyer and the seller in a transaction. They provide an opportunity for the buyer to back out of the deal if something goes wrong, without losing their deposit. For the seller, contingencies secure the transactions and make the home selling process a simple set of steps to follow.
One of the most common contingencies buyers includes in their contract is an inspection contingency. This gives them the right to hire a professional inspector to assess the property and identify any potential problems.
If the inspection turns up any major issues, the buyer can then negotiate with the seller to have them repaired or ask for a price reduction. If the seller is unwilling to make any changes, the buyer can walk away from the deal without losing their deposit.
Another common contingency is an appraisal contingency. This gives the buyer the right to have the property appraised by a professional to ensure that they are not paying more than it is worth.
If the appraisal comes back lower than the purchase price, the buyer can either negotiate with the seller to lower the price or walk away from the deal.
Another common contingency is a loan contingency, which gives buyers a set amount of time to secure financing for their purchase. If the buyer is unable to get approved for a loan within that timeframe, they can cancel the contract and get their deposit back.
In addition to the more common contingencies, buyers may also include custom contingencies specific to their needs. For example, a buyer might include a contingency that gives them the right to back out of the deal if they are unable to sell their current home. Custom contingencies are not standard but if the other party requests one, speak with the real estate agent about the implications and risks.
One of the most important aspects of contingencies is the deadline. Each contingency will have a specific timeframe in which it must be met and then removed by the buyer. Removing these contingencies allows the transaction to move to the next contingency or step in the process.
In general, these deadlines apply predominantly to the buyers and if the contingencies are not removed or extended (with notice) by the end of the contingency period, then the buyer is technically in breach of your contract and the seller could keep your Earnest Money Deposit or EMD (learn more about EMD here).
Important Note: the coordination and management of these deadlines are in your agent’s hands. All formal communications will be sent by them to the other party. However, both you and the vendors you work with should move swiftly to complete your assigned task.
One of the most important things to keep in mind when it comes to real estate contingencies is that they often require the involvement of outside vendors. For example, an inspection contingency will require the buyer to hire an inspector and schedule a time for them to come out to the property.
This can add several days or even weeks to the timeline of the deal, so it’s important to be aware of this when you’re negotiating your conteingencies. It’s also important that you as a buyer work quickly and with high-quality partners to complete your due diligence for each step.
While real estate contingencies can be a bit daunting, your agent is there to help you navigate them and make sure that everything goes as smoothly as possible. They will be able to answer any questions you have and help you understand what to expect during this period.
Your agent will also play a crucial role in managing the deadlines and communicating with the other party. They will make sure that all of your paperwork is in order and that you are meeting all of the necessary deadlines.
Real estate contingencies are an important part of any real estate transaction, but they don’t have to be scary. With the help of an experienced real estate agent, you can navigate them with ease.
If you’re ready to start the home buying process, we’re here to help. DoorTru Real Estate is a full-service brokerage that can help you with every step of the process, from finding the right property to negotiating your contract.
We have a team of experienced agents who are ready to help you find your dream home. Contact us today to get started.