What Contingencies May Be Included in a Real Estate Purchase Contract?

 Posted on December 28, 2021 in Real Estate

A residential real estate transaction can be complicated. Both buyers and sellers will need to meet certain requirements, and they may need to address a variety of legal issues that may affect their ability to complete the sale. Contingencies included in a purchase agreement can play an important role in a transaction, and the parties will need to understand what types of contingencies may apply in their case and the role that they may play during the home closing process.

Types of Contingencies

After a seller accepts a buyer’s offer on a home, the parties will sign a purchase contract that will include important details about the transaction. These contracts will usually include contingencies, or terms allowing either party to back out of the transaction if certain conditions are not met. These contingencies may address issues such as:

• Home appraisal - A buyer will want to make sure the home that they are purchasing is valued at an amount similar to the purchase price. In some cases, a mortgage lender may require a contingency that will ensure that a home is valued at a minimum amount.
• Financing - A buyer will need to secure a mortgage loan that will allow them to purchase the home from the seller at the agreed-upon price. Buyers will often need to provide multiple forms of financial information to lenders to qualify for a mortgage, and if they are unable to complete these requirements or obtain a loan, a contingency will protect them from being forced to purchase a home that they will not be able to afford.
• Sale of a previous home - If the buyer currently owns a home, they will most likely need to sell this home before they can assume ownership of their new home. If they are unable to sell their home, they may be placed in the position of being required to pay two mortgages at the same time, which usually is not financially feasible. A contingency may state that the buyer will only be able to proceed with the transaction if they sell their current home by a certain date.
• Inspections - The buyer has the right to perform a home inspection that will identify any major issues with the home, as well as other repairs that may need to be made. If the issues uncovered during an inspection are significant, a contingency may give the buyer the option to terminate the sale, or it may require the seller to make the necessary repairs. For example, if an inspection finds that the home’s foundation is faulty and would require major repairs, the buyer may choose to back out of the transaction.
• Title - During the closing process, a title search will be performed to uncover any issues that may prevent the transfer of the home’s title. Contingencies may allow the buyer to back out of the purchase if issues such as ownership disputes or liens cannot be resolved.

Contact Our Fairfield County Residential Real Estate Lawyers

At Ivey, Barnum & O'Mara, LLC, we provide legal representation for buyers and sellers during the home closing process. We can help you negotiate contingencies in your real estate contract that will protect your rights and meet your needs, and we will help you address and resolve any issues that may affect your transaction. Contact our Greenwich real estate attorneys today at 203-661-6000 to schedule a complimentary consultation.

Sources:

https://www.investopedia.com/articles/personal-finance/102913/contingency-clauses-home-purchase-contracts.asp

https://www.bankrate.com/real-estate/contingency-clause/