Contingencies in real estate contracts

In real estate contracts the contingency is a common element. Contingencies are clauses in a contract that give either the buyer or seller a way to get out of the contract if certain conditions or timelines aren’t met.  A commonly used example is that of a buyer making an offer on a new home before selling his existing home.  The buyer needs to sell his present home before being able to get financing on the new one.  So he makes his offer contingent upon the sale of his existing home.  There will always be a time period associated with such a contingency.  If the buyer is able to get his present home sold within that time period, the deal can go forward.  But if he fails to sell within the specified time period, the seller has the option of getting out of the deal.  In most cases, sellers in our Market area of California won’t accept this kind of contingency, because they will most likely feel that they can find another buyer capable of closing the deal without needing to sell another home first.  New home builders, however, may be in a better position to accept an offer contingent upon the sale of an existing home.

Not to worry.  Lenders can help.   And it is not so bad to Sell you current home PRIOR TO buying your next.   Often, sellers can "rent-back" to the buyer - paying rent to the Buyer until they, the Seller,  can move out.  If not, then just store most of the household goods and temporarily move into an apartment.  This is common.

Every contract can be unique.  The possibilities for various minor contingencies are virtually endless.  Some of the more commonly used contingencies would include:

Financing.  Contingencies that depend on the buyer being able to obtain FINAL financing are very common.

Home Inspections.  Probably the most common type of contingency is the “contingent upon satisfactory completion of inspection”.  There are any number of specific types of inspection for which a contingency might be included in a contract.  Some of the more common would include inspection by a qualified home inspector for hidden defects, pest inspections, water and sewage system inspections, inspections dealing with the presence of radon or mold, etc.   Typically there are minor repairs that need to be made during Escrow, and complete with little fan-fare.

Appraisal.  It’s not unusual for a buyer to have a contingency that allows for a formal appraised value at or above purchase price.  Since lenders will nearly always want an appraisal performed too, sellers usually don’t have a problem with this.

Remember, just like everything else in real estate contracts, contingencies are negotiable.  Always take care before signing that you are comfortable with all contingencies included in your contract.  Likewise, take time to think about what contingencies you might like to have added.

Some common details on a Purchase Agreement concern whether or not certain physical items stay with the house, or go with the Buyer, such as Drapes, Light Fixtures, Refrigerators, etc.   Both Drapes and Light fixtures are assumed to be fixtures that stay with the house unless an exception is made on the signed Purchase Agreement form.