A contingency clause can be added to a real estate offer, stipulating that the contingency must be met or the offer is not binding. This is a way for potential buyers to get out of making a purchase, often protecting any money that they have put down, because they have a valid reason to walk away from the offer.
Contingency clauses are not mandatory, but they are used so frequently that it is important for both buyers and sellers to understand how they work. Below are three examples.
A financing contingency
First and foremost, many people have not yet received final approval on a home mortgage when they make an offer on a property. It is common for them to include a contingency stating that they only have to buy the house if their loan application is approved.
Getting an appraisal
An appraisal contingency means that the buyer wants to ensure that the home is really worth the amount that they are offering. They want to have a professional appraisal carried out, perhaps looking at comparable sales in the area, so that they can decide if it is a wise investment.
Carrying out a home inspection
Finally, a home inspection contingency can protect a buyer from unknown issues with the house. Even though they have done a walk-through, they want a certified professional to examine the property and look for issues. Substantial problems, such as foundation cracks or roof leaks, could mean that they want to readjust their offer or buy a different property.
These are just three examples of potential contingency agreements, but they help to show some of the complexities of real estate transactions and why it can help to work with an experienced attorney.