{"id":5508,"date":"2022-05-24T09:45:37","date_gmt":"2022-05-24T16:45:37","guid":{"rendered":"https:\/\/www.realtyexecutives.com\/blog\/?p=5508"},"modified":"2022-05-16T09:53:38","modified_gmt":"2022-05-16T16:53:38","slug":"what-to-know-about-contract-contingencies","status":"publish","type":"post","link":"https:\/\/www.realtyexecutives.com\/blog\/what-to-know-about-contract-contingencies","title":{"rendered":"What to Know About Contract Contingencies"},"content":{"rendered":"\n
\"A<\/figure><\/div>\n\n\n\n

There are many steps to purchasing a new\nhome. After the initial offer is made, buyers and sellers often negotiate\nbefore they come to an agreement. Buyers then deposit earnest money to show\nthey are serious about the purchase, and both parties begin the closing\nprocess.<\/p>\n\n\n\n

However, a lot of things can go wrong\nbetween signing the contract and closing on a house. To protect buyers, several\ntypes of contract contingencies<\/a> may be included in the contract. These allow the buyer to legally back\nout of the sale if necessary.<\/p>\n\n\n\n

Many home contract contingencies are\naccepted by sellers, but some may weaken offers on a home. Here are four common\ntypes of home contract contingencies and how to tell which ones may be right\nfor you.<\/p>\n\n\n\n\n\n\n\n

1. Financing Contingency<\/h2>\n\n\n\n

Financing contingencies are sometimes also\nknown as mortgage contingencies. They protect the buyer from having to complete\na sale they can\u2019t afford. Financing contingencies are an important part of your\ncontract, and they\u2019re commonly accepted by sellers.<\/p>\n\n\n\n

Most buyers can\u2019t afford to pay cash for a\nhome. To complete their purchase, they must be approved by a lender who agrees\nto lend them the money. Lenders research buyers\u2019 financial history to ensure\nthey will pay the money back on time.<\/p>\n\n\n\n

If lenders aren\u2019t satisfied with a buyer\u2019s\nfinancial history, they may refuse to give them a loan. Unfortunately, the\nbuyer may have already signed a contract with a seller at this point. A\nfinancing contingency protects buyers from having to go through with the sale<\/a> if financing for the home falls through.<\/p>\n\n\n\n

Although getting pre-approved for a loan\ncan make the process smoother, it\u2019s not a guarantee of a loan. As a buyer, you\nshould include a financing contingency<\/a> in your contract even if you\u2019ve been pre-approved.<\/p>\n\n\n\n

2. Appraisal Contingency<\/h2>\n\n\n\n

Like financing contingencies, appraisal\ncontingencies protect buyers from legally agreeing to buy a home before they\nhave the financial resources to pay for it. Before they lend buyers money,\nlenders will complete an appraisal on the home they\u2019re borrowing money for.<\/p>\n\n\n\n

If they find the home is worth less than it\u2019s being sold for, the lender may not give the buyer enough money for the full purchase cost. For example, a lender may appraise a house that\u2019s being sold for $170,000 as only worth $150,000 on the current market. Based on their research, they\u2019ll only lend the buyer $150,000. <\/p>\n\n\n\n

At this point, the buyer and seller have several options. They can renegotiate the price to a lower amount, or the buyer can look for additional financing to cover the difference. However, if their home contract has an appraisal contingency, the buyer can also back out of the sale without any legal repercussions. <\/p>\n\n\n\n

3. Inspection Contingency<\/h2>\n\n\n\n

Before a home sale goes through, many\nbuyers like to hire an inspector<\/a> to check that there are no major issues with the property. Inspection\ncontingencies are clauses in a home contract that protect the buyer from\ncontinuing with a sale if major issues are found.<\/p>\n\n\n\n

Unless it\u2019s new construction, every home\nhas problems that need to be fixed. However, these problems can range from\nbroken appliances and squeaky doors to mold and foundation issues. While minor\nissues can be fixed easily, some major issues could be unsafe and cost new\nbuyers a lot of money to fix.<\/p>\n\n\n\n

Inspection contingencies cover any surprises that crop up during inspection<\/a> and may change the buyer\u2019s mind about completing the sale. After an inspection occurs, buyers and sellers with an inspection contingency in their contract can renegotiate. Buyers can also choose to walk away from the sale if the damage is too much for them. <\/p>\n\n\n\n

After a home inspection, sellers are required to tell the next buyer who makes an offer what the inspector found. This gives them the incentive to compromise and finalize the sale with the original buyer if there\u2019s a major issue. <\/p>\n\n\n\n

4. Home Sale Contingency<\/h2>\n\n\n\n

Often, buyers are trying to sell their own\nhomes at the same time they\u2019re searching for a new place to live. Ideally,\ntheir first home sells around the same time as a new purchase goes through.\nHowever, this doesn\u2019t always happen.<\/p>\n\n\n\n

To protect themselves from having to pay\nfor two homes at once, some buyers add a home sale contingency clause to their\noffer. This means the sale of a new home won\u2019t go through until after their\nfirst home sells.<\/p>\n\n\n\n

Home sale contingencies aren\u2019t great for sellers because they must take their house off the market without knowing if the sale will go through. In today\u2019s market, sellers generally will pass up an offer with a home sale contingency and wait for an offer that\u2019s better for them. <\/p>\n\n\n\n

In some cases, sellers will allow a home sale contingency and add a kick-out clause<\/a> to protect themselves from a drawn-out sale process. This clause enables them to keep marketing their home, and they\u2019re able to give the first buyer an ultimatum if they receive a second offer that\u2019s better for them. <\/p>\n\n\n\n

Everything You Need to Know About Contingencies<\/h2>\n\n\n\n

Contingencies legally and financially\nprotect buyers in home deals that go sour. However, not all contingencies are\nwelcome to sellers. To help you decide which contingencies to include in your\nhome contract, talk with your real estate agent and compromise only on what you\ncan afford.<\/p>\n\n\n\n

\n\n\n\n

About the Author:<\/strong> Evelyn Long is the editor-in-chief of Renovated<\/a>, an online resource for the real estate market. Her freelance writing has been published by the National Association of REALTORS\u00ae, Insights for Professionals and other prominent industry magazines.<\/p>\n","protected":false},"excerpt":{"rendered":"

There are many steps to purchasing a new home. After the initial offer is made, buyers and sellers often negotiate before they come to an agreement. Buyers then deposit earnest money to show they are serious about the purchase, and both parties begin the closing process. However, a lot of things can go wrong between … Continue reading What to Know About Contract Contingencies<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":10,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0},"categories":[25,26,835],"tags":[307,4072,59],"yst_prominent_words":[6110,4048,904,3173,6108,4049,3485,6106,6111,6109,6123,546,6107,6105,6120,6121,6113,6117,1182,6122],"_links":{"self":[{"href":"https:\/\/www.realtyexecutives.com\/blog\/wp-json\/wp\/v2\/posts\/5508"}],"collection":[{"href":"https:\/\/www.realtyexecutives.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.realtyexecutives.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.realtyexecutives.com\/blog\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/www.realtyexecutives.com\/blog\/wp-json\/wp\/v2\/comments?post=5508"}],"version-history":[{"count":1,"href":"https:\/\/www.realtyexecutives.com\/blog\/wp-json\/wp\/v2\/posts\/5508\/revisions"}],"predecessor-version":[{"id":5510,"href":"https:\/\/www.realtyexecutives.com\/blog\/wp-json\/wp\/v2\/posts\/5508\/revisions\/5510"}],"wp:attachment":[{"href":"https:\/\/www.realtyexecutives.com\/blog\/wp-json\/wp\/v2\/media?parent=5508"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.realtyexecutives.com\/blog\/wp-json\/wp\/v2\/categories?post=5508"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.realtyexecutives.com\/blog\/wp-json\/wp\/v2\/tags?post=5508"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.realtyexecutives.com\/blog\/wp-json\/wp\/v2\/yst_prominent_words?post=5508"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}