How do contingency clauses protect property buyers?

Getting an offer on the home you are selling is a thrilling experience -- especially if you've been trying to sell for a while. You may immediately feel a deep sense of relief now that you finally have a buyer.

Before you get too excited, you need to understand that your buyer has likely attached some contingency clauses to their offer. It's essential to know what they could mean.

What's a contingency clause?

Essentially, it's a condition imposed on the deal that has to be met before the agreement is binding. Most contingency clauses in real estate deals allow the buyer to walk away from the deal -- without penalty -- if the conditions aren't met.

What are the most common contingency clauses in real estate?

Some of the most common clauses you're likely to see include:

  • Inspection requirements -- Buyers usually want the right to have the home inspected (at their own expense) to make sure that there are no serious hidden issues like a cracked foundation or plumbing that's in disrepair.

  • Financing requirements -- A financing contingency allows the buyer to back out of the deal without being in breach of contract if they try to secure financing and fails.

  • Appraisal requirements -- Lenders usually require this kind of contingency so that they don't end up financing a home for more than it's worth. If the appraisal on the home is low, the deal may fall through.

These are not the only contingency clauses that a buyer may seek to impose, so never take an offer on your property until you're clear about the contingencies and know you're comfortable accepting them. If your market is weak and you really need to sell, you may have little choice but to accept them. However, a strong real estate market may make buyers willing to give up some of their protections.

Find out more about how to best protect your rights and interests during any real estate transaction.