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Contingencies many buyers include in their purchase offers

| Jul 7, 2021 | Real Estate Transactions |

Understanding real estate contracts is hard enough that there is an entire profession dedicated to managing these transactions. Many people work with a real estate professional and a legal one to give themselves as much protection as possible.

Sellers want to have someone review their disclosures and other listing paperwork for legal liability and help them weigh the offers they receive on the property. Buyers will want help drafting customized offers on properties that would suit their needs.

Whether you are a seller responding to offers or a buyer trying to protect yourself in an aggressive real estate market, understanding the most common contingencies for purchase offers is invaluable.

Sale contingencies

Some people buying a home will first need to sell their existing residence to free up capital. They will make their offer on a property contingent on their ability to list and sell their home in the immediate future. Such contingencies work well for sellers who do not want to move out of property immediately. On the other hand, a sale contingency would be very unattractive to a seller who needs to close immediately because they also need to move.

Inspection and title contingencies

Including a contingency that makes it clear the buyer expect the property to be in the presented condition at the time of inspection is also common. If a seller didn’t disclose or was somehow unaware of significant defects that turn up during inspection, this contingency allows the buyer to cancel their offer without losing their earnest money. The same is true of a title contingency, which lets a buyer cancel and offer if there are serious issues with the property’s title.

Financing or appraisal contingency

Some people make an offer on a property without having received pre-approval for a mortgage. This is a much less common practice with the market as competitive as it is right now, but it does still occasionally occur. It simply means that the buyer wants their earnest money back if they can’t get a mortgage for the property.

An appraisal contingency is similar in that it give the buyer the chance to back out if there are financing issues. If the appraisal doesn’t support the agreed-upon sale price for the home, the buyer may not be able to move forward with the purchase.

Contingencies can benefit buyers by protecting them from making a bad investment. They can also make it clear to sellers that the buyer is committed because they have thought through the offer they made very carefully. Understanding how different contingencies might affect a home sale can help you decide whether to accept or make an offer that includes them during an upcoming real estate transaction.