Are you in the process of buying a home? Are you selling your property? Regardless of what side of the transaction you are on, it is essential to become familiar with this word: contingency. If you are not familiar with the contingencies in a real estate contract, it could come back at you at some point in the future.
Generally speaking, contingencies are put in place so a buyer has the ability to back out of the deal in the event that something goes wrong. Furthermore, this allows them to avoid any financial loss.
Here are three of the most common contingencies:
-- Home inspection contingency. This gives the buyer the right to have the property inspected before moving forward. If something is wrong, the buyer can then request a repair or back out of the deal.
-- Appraisal contingency. If the appraised value of the property is less than the sale price, the buyer has the ability to back out.
-- Mortgage contingency. Most people purchase a home with the help of a mortgage. With a mortgage contingency in place, the buyer can back out of the deal if they are unable to secure financing. In today's world, this is more common than most people believe.
Selling or buying real estate is never as simple as it sounds. The contract, including contingencies, can be complicated. As a buyer or seller, you want to have knowledge of each and every contingency, including how it can be put into effect. This will allow you to better understand what could happen as the transaction moves forward.
Source: Realtor.com, "What Does Contingent Offer Mean?" accessed Feb. 19, 2015