Home buying contract contingencies may be something you first heard of when you started your home search process. The topic of contingencies will come up during the home bidding and contract negotiation steps of the home buying process, so we want to go over some of the most common home buying contingencies included in a residential real estate contract.
What are Common Home Buying Contingencies?
Home buying contingencies are designed to protect both the buyers and sellers who have entered into a real estate contract. They are written into the contract when making an offer to buy a home, and are agreed upon by both parties, along with the sales price and other terms. Let’s take a look at 4 common home buying contingencies.
- Sale and Settlement Contingency. This is a purchase agreement contract clause that mostly favors the buyer of a home. It states that the buyer will purchase the home for sale as long as they sell their current home. If a seller accepts an offer with this contingency, their home for sale will go under contract and the buyer will have about 4 weeks to sell their current home. It’s great for the buyer so they can be assured they won’t need to have two homes with mortgages at the same time, and be able to use their equity in the current home, towards their new home’s purchase. However, if the buyer does not sell their current home, they can cancel this home purchase contract and move on.
Sellers can often continue to market and show the home during this time. But if it is under contract, many home shoppers will assume it is unavailable. The seller may also choose to include a clause for their benefit stating if the seller receives another offer during this time, the seller can give the first buyer a certain amount of time to move ahead with the contract without this contingency, or the seller can accept the offer from the second buyer.
- Appraisal Contingency. This clause simply states the buyer is able to walk away if the house does not appraise for at least the contract’s purchase price. There are a number of things that can be done to move beyond this if the buyer really likes the home. One of them is that the buyer can cover the difference between the appraisal and purchase price with cash. Yes, this certainly happens. Especially during high demand for housing.
- Financing Contingency. A financing contingency protects both the buyer and the seller. A financing contingency will take effect if the buyer’s financing falls through, and provide the buyer with a way to cancel the contract. For the seller, it’s all about the peace of mind that the buyer has secured the financing needed to purchase the home. Once the financing contingency is met, sellers can move forward in the home selling process feeling more confident that they’ll successfully reach closing day with this buyer. This is one great reason a sale should only go under contract with a buyer that has received pre-approval from their lender; it’s not a guarantee the home sale will close, but it’s more probable.
- Inspection Contingency. One clause in most residential real estate contracts is the home inspection contingency. It gives home buyers the chance to really investigate a home to uncover any big problems with the home they are planning to buy. The inspection contingency can include many items: from the structure of the home to the home’s major systems to pest infestations. It’s important for both parties to understand this contingency. For the seller of the home, this can be a good thing to discuss with their selling real estate agent and price the house accordingly. Passing an inspection can go a long way in selling a home quickly and for the asking price.
Understanding Real Estate Contingency Clauses
Make sure you review these and other contingencies specific to your buying or selling contract with your real estate agent. A good real estate agent will be able to guide you through the contract details to make your buying or selling go forth as smoothly as possible.
Work With An Experienced Memphis Area Real Estate Agent
When it’s time to sell your existing home or buy a great new place, turn to a highly-regarded and well-informed local real estate agent. You want someone that you can trust to give you the best advice and know-how for your new home purchase or sale. Check out my other great articles to help you through your home selling and buying experience here in Memphis.
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Contact me at (901) 828-8919 or drop me a quick note at firstname.lastname@example.org and we can speak in person about your plans and options. Ask me about seeing homes for sale by video or virtual tour and find the best place for you!
Angie Kelley, Crye-Leike Realtors
(901) 828-8919 or (901) 756-8900