If you’re thinking about buying a home, then you’ve likely heard of contingencies—the clauses in a real estate contract that stipulate conditions for the buyer and seller to agree upon for a sale to be completed. While contingencies help protect buyers if they’re unable to complete the sale, some people may be tempted to go without them in a hot market to make their offer look more appealing. However, understanding and including contingencies in your contract is key to safeguarding yourself. Here, Trulia explains how a home’s status changes once a contingent offer is accepted and recommends a few important contingencies to consider as part of your offer.
Active contingent
A home’s status changes to active contingent when a home seller has received an offer from a buyer, but the buyer needs to meet certain conditions before the sale can be finalized. These conditions may include a home inspection or being approved for a mortgage loan.
Types of contingencies for buyers to consider:
A mortgage financing contingency gives the buyer a way to back out of the contract if an application for financing is denied, or if financing is granted for a lesser amount (for example, if the home appraises for less than expected).
The general inspection clause allows buyers to bring in a professional home inspector to check out the property—and to cancel or renegotiate the deal. If the inspection turns up a less than satisfactory result, such as significant structural flaws or major costly repairs, buyers have the right to ask the seller to lower the sale price, offer buyer credits or ask for necessary fixes to be completed before the close of sale.
If the initial inspection turns up issues, contingencies for additional specialists and tests may be required. This contingency allows buyers to have the home checked for mold and other toxic substances, as well as wood-destroying pests such as termites. It also allows for other specialists like chimney inspectors and foundation experts to look at the property before the sale is completed. If any problems are found, the buyer should have the opportunity to renegotiate the deal or cancel it completely.
The attorney review contingency can give the buyer and the seller a specific amount of time, as specified in the contract, to have their legal team inspect the signed contract. The lawyer will review the legality of the contract and check for important safeguards for their client before the deal is done.
The buyer’s home sale contingency allows the buyer to cancel the contract without penalty if they’re unable to sell their current home in a specified amount of time. If the buyer is under contract to sell their residence and the deal falls through, they won’t be obligated to purchase the new property.
An appraisal contingency permits the buyer to have the home appraised—a must for many buyers financing their purchase—and to only follow through with the sale if the appraisal matches or exceeds the home’s price. If you’re using a lender, it’s smart to check and see if they require this contingency as part of your purchase contract.