5 Common Contingencies In A Home Purchase Deal
A contingency clause in a real estate contract sets a condition that must be met before the purchase contract becomes binding. Contingency clauses are widely used ways to protect both buyers and sellers in a real estate transaction. Importantly, these conditions allow parties to back out of their contracts under agreed-on circumstances that are negotiated between the buyer and seller.
Some of the most common contingency clauses in New York real estate contracts include:
- Inspection Contingencies
Inspections benefit the buyer so they know exactly what they are getting into. These allow buyers to get an accurate picture of the property’s condition inside and out. The general home inspection covers the interior and exterior of the home, as well as its electrical, plumbing, and HVAC systems. Other inspections may search for mold, termites, or other unseen conditions that can damage or destroy property over time.
If the inspection reports come back clean, the contingency has been met and the sale can proceed. If not, the buyer has the option to walk away from the sale, move forward, or proceed under the additional condition that the sale price be reduced or the buyer covers the cost of repairs.
- Financing Contingencies
A financing contingency, or mortgage contingency, gives the buyer time to secure financing for the purchase. This allows buyers an opportunity to walk away from the deal if they can’t get approved for the loan and reclaim their earnest money as well. This contingency also allows the seller to terminate the deal if the buyer doesn’t obtain financing within a certain time frame.
- Appraisal Contingencies
Similar to a financing contingency, appraisal contingencies ensure that the fair market value determined at appraisal meets the amount that the lender approved for the mortgage. For example, if the buyer and seller agree to a $500,000 sale price, but the appraisal comes in at $450,000, the mortgage lender might only approve financing for $450,000. This would leave the buyer to cover the remaining $50,000 elsewhere, or both parties can abandon the deal.
- Title Contingencies
Title to the home is the most critical document in a real estate transaction because it shows who owns the home currently and who has held ownership in the past. It also shows any liens, judgment, or other interests against the property that could cloud the title. The buyer wants a home with clear title, free of any encumbrances. A contingency that the sale cannot close unless the title comes back clean is commonplace as a crucial protection for buyers.
- Home Sale Contingencies
Home sale contingencies are popular among buyers because they provide that – if the buyer cannot sell the home they currently live in – they can leave the deal and reclaim their earnest money. These put sellers in a state of limbo (unless they include a kick-out contingency that allows them to continue marketing the home while the buyer awaits the sale of their own home).
Contingencies offer certain benefits and drawbacks in a real estate transaction. They can provide some assurance and safety for worried buyers and sellers. At the same time insistence on numerous contingencies can weaken a buyer’s offer, or put the seller in a weakened bargaining position. Reviewing your priorities and concerns with a New York real estate attorney can help you narrow down your goals and improve the buying or selling experience.
Our Bronx and New Rochelle Real Estate Attorneys Know the Ins and Outs of Contingencies in Real Estate Transactions
Buying or selling property can be an exhilarating but stressful experience, filled with potential surprises and pitfalls. Navigating the process with a skilled Bronx and New Rochelle real estate attorney can provide critical insight and assurances toward a successful result. Contact us today for help.