Real Estate Contingency Clauses
If you are selling or buying property, you must understand contingency clauses and how they could affect you. A contingency clause in a real estate contract is a condition that has to be met in order for the transaction to move forward. Fulfilling the condition set out a contingency clause then becomes a requirement for completing the sale and closing the deal.
Let us walk you through the most common ones...
Common Contingency Clauses:
• The Home Inspection or Due Diligence Clause:
"I will buy this house if it's in relatively good shape or if the seller makes repairs that I don't want to."
The home inspection or due diligence contingency clause is designed to allow the buyer to back out of the transaction based on the home inspector’s report.
• Cost-Of-Repair Contingency Clause
"If the inspector's report estimates repairs over $40,000, I'm not buying (even though I really love the house)."
The cost-of-repair contingency clause is a contingency clause that specifies the amount of money required to perform necessary repairs.
• Appraisal Contingency Clause
"If this property does not appraise at at least $1.9M, I can't go through with it."
The appraisal contingency clause is meant to protect the buyer because it helps to ensure that the property’s fair market value corresponds to a minimum specified amount of money. This helps ensure that a buyer is not overpaying when they are buying a home.
• Financing Or Mortgage Contingency Clause
"I will buy this house if I can get a mortgage."
The buyer's offer will be contingent on the ability to obtain financing. The financing clause will specify the type of financing you wish to obtain, the terms of the financing, and the amount of time you will have to apply for and be approved for a loan.
• House Sale Contingency Clause
"I'll buy this house if I sell my house."
If buyers are unable to sell their current home for their asking price within an amount of time specified in the contingency clause, they will be able to back out of the transaction without facing any legal or financial consequences. This gets deeper and we know all of the in's and out's of all legalities.
• The Kick-Out Contingency Clause
"I will sell you my house if you sell your house and remove it from the market within 72 hours."
A kick-out clause gives sellers the ability to continue marketing a house in the event that they receive an offer with contingencies, or conditions that must be met. A kick-out clause allows the seller to "kick out" a buyer with contingencies after a certain time period if a better offer comes around.
• The Home Insurance Contingency Clause
"I will sell you this house if you can get homeowner's insurance."
Lenders and sometimes sellers will require potential buyers to apply for and obtain homeowner’s insurance.
• Right To Assign Contingency Clause
"As an investor, I will not buy this property if I cannot find another buyer in 30 days."
This contingency provides investors with the option to back out of a contract if they are unable to assign a real estate contract to another buyer within a specified amount of time.
• Title Contingency Clause
"I will buy this house if you can prove that you actually own it."
If there is a lien on the property that needs to be paid or there is an ownership dispute, this comes in handy. The seller needs to legally prove that they own the property free and clear.
If you have questions about your specific real estate contract or additional questions about contingency clauses, call us. We can walk you through it.