What are Contingencies?
Contingencies dictate whether or not a sale will actually take place. the act of placing contingencies in a real estate contract is pretty common. While the type of contingency may vary from offer to offer, the most normal ones are financing and inspections.
A typical financed sales agreement has the following contingencies:
Financing:
Purchaser must be able to obtain approval of loan. This includes being able to obtain financing at an interest rate you can afford. If the loan falls through for any reason, the contract may be voided & your earnest money would be refunded to you.
Home Inspection:
If the home inspector states that the property has health & safety issues & the Seller is unwilling to repair, then the contract may be voided & earnest money refunded to you. However, if there are trivial issues that the seller will not repair, yet you still wish to void the contract, then if pursued, the Seller would be owed the earnest money.
Appraisal Value:
Home must appraise for Purchase Price or greater. The appraisal will stay with the property for 6 months; therefore, the property will not be able to be sold for anything higher than that appraisal value. If it appraises lower than Purchase Price, the contract can be renegotiated to account for the difference, otherwise the contract would be voided & the earnest money would be refunded to you. However, you may be help responsible for the cost of the Appraisal since it has been completed. Read more about appraisals here.
Appraisal’s Required Repairs:
The appraiser will also note any repairs that will need to occur in order to conform to the loan type’s guidelines and standards. The seller is required to handle these repairs. If they are unwilling to do so, the contract is voided & the earnest money is refunded to you.
Sale of Current Home:
If you are selling your own home, the purchase can be contingent upon the sale of your house. Therefore, if the Purchase Agreement for your Sale falls through, then if you wish, the contract can be voided & your earnest money refunded to you.
However other types of contingencies may encompass any of the following items as well:
Inspection of property corners/ property survey
Preliminary title report
Homeowners’ association rules/ covenants, etc.
Lead-based paint inspection (*Federal law gives buyers 10 days to inspect for lead-based paint)
Radon, mold and/or asbestos inspection
Termite inspection
Sewer/ septic and/or well inspection
Roof inspection
As a part of active approval, such contingencies must be removed in writing by certain dates which should also have been stated in your purchase offer. However, in some purchase agreements, contingencies are passively approved (also known as constructive approval), if you don't protest them by their specified deadlines. It, therefore, becomes important for buyers to understand the approval process and abide by taking necessary actions by the mentioned dates.
