When buying or selling a house, you will need to go through a negotiation process that sets the final price on the home and all related real estate contingencies. Knowing what contingencies are and how to use them to get the best and most secure deal will make the process easier and less stressful.
Learn more about real estate contingencies and how you can use them when buying or selling a house.
What Is a Real Estate Contingency?
A real estate contingency is the part of the contract that lists the conditions of the property sale. Contingencies must be met or agreed to in order for the sale to be completed. Both buyers and sellers can build contingencies into the agreement, and they are often decided upon before the home is listed or the offer is made.
As you will see in the examples below, a contingency from a seller might be a specific date when the home is available. A contingency for the buyer could be a specific repair or inclusion.
Contingencies can help buyers and sellers get what they want out of a house, but they can also slow down a sale. Something that seems like a reasonable ask from one party might be a dealbreaker for another. Your real estate agent can guide you through which contingency options are ideal for your situation and which ones buyers aren’t likely to respond to.
Below are eight common real estate contingencies and what they entail. They can protect buyers, sellers, lenders, and even real estate investors.
#1) Appraisal Contingency
This contingency favors the buyer. It requires a property review to show the appraised value of the home, and it helps the buyer make sure the home is listed at a reasonable amount compared to its value. That way, a home listed at $500,000 isn’t actually worth only $300,000.
#2) Financing Contingency
This one also favors the buyer. This contingency ensures the buyer has enough time to acquire financing to buy the house. This is also referred to as a mortgage contingency. With this contingency, the buyer doesn’t have to worry about the seller giving the house to someone else while they are still looking for financing.
#3) Home Inspection Contingency
This contingency allows the buyer to have the home inspected before a final price is set. The buyer can then negotiate the price based on anything the inspection finds. For example, if the HVAC system is old and at-risk of breaking, the buyer might make a lower offer or ask the homeowner to replace the AC system before they move in.
#4) Home Insurance Contingency
This contingency favors the lender. It requires the buyer to purchase a home insurance policy in order to protect the home. This contingency is usually required by the lender to protect the investment.
#5) Right-To-Assign Contingency
This contingency is predominantly used by wholesale real estate investors. The real estate investor is able to back out of the deal if they cannot assign the contract to another buyer in a timely manner. This ensures that the investor isn’t stuck with a property that he or she can’t sell, protecting their investment funds.
#6) House Sale Contingency
This is a time period for buyers to finalize the sale. The house sale contingency can be used by buyers to set a move-in date or so they can have more time to sell their existing property. Once again, the goal of this contingency is to get both parties on the same page for when the house will exchange hands.
#7) Kick-Out Clause
This clause protects the seller. If a buyer uses a house sale contingency, the seller can back out and find a more qualified buyer who wants to move faster on the house. This allows the seller to move the house faster and get the property off their hands.
#8) Title Contingency
If there is a problem with the title of the house, the buyer can walk away. This includes an ownership dispute or a lien on the home. These issues may only come to light during the financing and closing process when the buyer is already invested in the home. This contingency gives buyers the protections they need so they don’t get caught up in homeowner’s legal issues.
Know Which Real Estate Contingencies Are Right for Your Transaction
If you want to include a few real estate contingencies in your home sale, talk to a Realtor® who can help you figure out which ones are best for you. Explain why the contingency is important to you and see what they recommend. They may suggest alternative options or agree that your contingency is important.
To find the best Realtor® to guide you through the process, use Effective Agents. Use our search to find the best person in your area to help you buy or sell a house based on your specific needs, wants, location, and situation.