A contingency is text added to a purchase agreement that specifies that certain terms must be met in order for the sale to proceed. When a seller receives an purchase agreement from a buyer, they should carefully review it for any contingencies that could interrupt the sale of the home. Contingencies can be made for a number of reasons, but here are four of the most common ones.
Financing Contingencies. Most purchase agreements will include a financial contingency that allows the buyers to withdraw from the purchase without penalty if they are unable to obtain a mortgage or close a loan. The biggest way to avoid this contingency is to sell only to buyers that have gone through the pre-approval process.
Appraisal Contingencies. A buyer will have an appraisal contingency if they are relying on a bank for funding. Generally, this is nothing to worry about for a seller. The only issue that could arise is if the appraisal comes in low, which may cause the buyer’s loan to be denied.
Home Inspection Contingencies. This clause is done to protect buyers against damage that may affect the value of the home. The buyers may bring in a number of inspectors and contractors to inspect the property and make sure there are no issues. If inspections reveal the homes needs repair, additional negotiations may take place on who pays for the repairs and who is responsible for making sure they are completed.
Home Sale Contingencies. A buyer may include this contingency if they are depending on the sale of their current home in order to purchase another one. With this contingency, sellers usually face longer time frames and bigger risk factors that the sale may stall heading into closing.