What are Real Estate Contingencies?
Real estate transactions can be complex and filled with uncertainties.
To address this, buyers and sellers often include contingencies in their contracts to ensure that certain conditions must be met before the sale can proceed. In this blog post, we will explain what real estate contingencies are, how they work, and why they are essential for successful real estate transactions.
A contingency is a provision in a real estate contract that makes the sale contingent upon certain conditions being met. These conditions can be anything that the parties agree upon, such as obtaining financing, inspecting the property, or selling a current home. Contingencies protect the buyer from losing their deposit or facing legal repercussions if they cannot fulfill their obligations.
How do Real Estate Contingencies Work?
When a buyer and seller agree to a contingency, the contract will outline specific terms that must be met before the sale can proceed. If any of these terms are not met, the contract may be canceled, and the buyer may receive their deposit back.
Here are some common types of real estate contingencies:
Financing Contingency: This contingency makes the sale dependent upon the buyer securing financing. If the buyer is unable to obtain a mortgage, the contract may be terminated. This is a normal contingency in a Texas Real Estate Contract most of them allow for 14-21 days for financing to be approved it depends on what your agent puts in the blank as to how many days you have. This is very important because once the dates have passed this time frame you will no longer be subject to financing terms on the contract. At United Country JW Realty & Auction Services we know this can be a negotiating point and we will advise you accordingly on what best suits each and every situation.
Inspection Contingency: This contingency allows the buyer to have the property inspected by a licensed inspector. If the inspector discovers any significant issues, the buyer can negotiate repairs or cancel the contract. This is normally done by selecting the option period in a Real Estate Contract. An option period gives you an unrestricted right to terminate the contract within a certain number of days by depositing an option fee, this fee is not refundable unless you actually close on the property.
Appraisal Contingency: This contingency requires that the property be appraised at a certain value. If the appraisal comes back lower than the sale price, the buyer can negotiate a lower price or terminate the contract.
Sale of Existing Home Contingency: This contingency allows the buyer to make the sale dependent on the sale of their current home. If the buyer's home does not sell within a specified timeframe, the contract may be canceled.
Why are Real Estate Contingencies Important?
Contingencies are essential for protecting both the buyer and the seller. For buyers, contingencies provide a way to ensure that they are not at risk of losing their deposit if they cannot meet their obligations. For sellers, contingencies provide a way to ensure that the sale will not fall through because the buyer cannot meet their obligations.
Contingencies also help to reduce the risk of litigation. If a buyer is unable to meet their obligations, the seller may be entitled to keep the deposit as compensation for any damages incurred.
Finally, including a contingency to sell their existing home can also provide a seller with more leverage when it comes to negotiating the terms of the sale. If a buyer is interested in the property, they may be willing to offer more favorable terms, such as a higher purchase price or a longer closing timeline, to secure the sale. Overall, including a contingency to sell their existing home can provide a seller with more flexibility and control over the selling process, which can ultimately lead to a more successful transaction.
Conclusion
Real estate contingencies are an essential aspect of any real estate transaction. They provide a way to ensure that both buyers and sellers are protected and that the sale can proceed smoothly. If you are planning to buy or sell a property, it is essential to work with a qualified real estate agent who can help you understand the contingencies that may be relevant to your situation. With the right contingencies in place, you can reduce your risk and enjoy a successful real estate transaction.