Definitely maybe. If you enter into a real estate contract to buy or sell a home and it contains contingencies – which it likely will – definitely maybe is the answer to whether the deal will get to closing. Contingencies in a real estate contract are things that must or should happen before the purchase and sale is consummated. If these specified events or tasks don’t happen or get done, the party who requested them can walk away from the agreement.
Given that most residential real estate contracts contain contingencies, it is important to understand what they are, what they mean, and what effect they have on real estate transactions.
Definition Of A Contingency Clause
A contingency clause is a condition or action that one or both of the parties must meet for a real estate contract to become binding. Both parties must agree to include them in the agreement for them to be valid and enforceable. Inserting them into a contract or purchase agreement makes them part of the agreement and create a basis for its termination if the contingency is not satisfied, usually by a specified date or with a certain amount of time.
What Kinds Of Contingencies Are In Real Estate Contracts?
You can pretty much a real estate contract contingent on anything (assuming both parties agree). You could theoretically make a home purchase contingent on the Cubs winning another World Series this year. More common, however, are the following types of continent clauses:
- Appraisal contingency. Buyers will request this contingency to ensure that that the home they are about to buy has a valuation at or above a certain specified amount.
- Financing/mortgage contingency. Unless a buyer is paying in cash, which they almost always don’t – they will need a mortgage to finance their purchase. Since the seller’s ability to buy the home is contingent on obtaining a mortgage, they may add this clause so they can get out of the contract and recover any earnest money provided if they can’t secure appropriate financing.
- Home sale contingency. Many buyers need to or want to purchase a new home before they have had the opportunity to sell their old one. This contingency provides the buyer with a specific amount of time to sell and settle their existing home so that they can finance the new one.
- Home inspection contingency. Nobody likes surprises when buying a house, including the hidden problems that a home inspector may find. The buyer can make the purchase contingent on a report a home inspector provides within a specified amount of time. The parties can agree on the items that could justify either a termination of the agreement or a concession by the buyer as to purchase price or a commitment to remedy the issue.
While contingencies can provide significant protections for a buyer, they can be a risk and burden for sellers. Accordingly, offers without contingencies will be more attractive to sellers, who may also be willing to accept a lower sale price in exchange for the relative certainty that the sale will close
These important contractual terms are just some of the nuanced issues that home buyers must address in their real estate contracts and purchase agreements. An experienced Chicago real estate agent can help buyers navigate these complexities and get them in their new home without complications or delay. Please contact us to learn more about how we can help.