Understanding Contingencies In a Real Estate Transaction

February 15, 2024
Ryan Colquhoun

Contingencies are essential in real estate transactions, providing both buyers and sellers safeguards and flexibility. These contingencies, which are contractually binding conditions, allow parties to navigate the complexities of buying or selling property with more certainty and protection.

What Are Examples of Real Estate Contingencies?

A contingency in a real estate contract is a provision that allows either the buyer or seller to back out of the deal under certain circumstances without facing legal or financial consequences. These provisions act as safety nets, protecting buyers and sellers from unforeseen events or issues arising during the transaction.

One common type of contingency that helps the purchaser is the financing contingency. A financing contingency allows the buyer to withdraw from the deal if they cannot secure a mortgage loan on the terms specified in the contract. In a competitive real estate market, where securing financing can be unpredictable, this contingency allows buyers to exit the transaction if their loan application faces unexpected challenges.

Another crucial contingency for the buyer is the inspection contingency. This permits the buyer to inspect the property to identify any defects or issues professionally. If significant problems are discovered, the buyer can negotiate repairs with the seller or opt out. The inspection contingency protects buyers from purchasing a property with hidden defects and ensures they clearly understand its condition.

The home sale contingency can benefit either the buyer or the seller. In the case of the buyer, the buyer gets a certain window of time—typically 3 months—to sell their current house before purchasing the new house. If the buyer can’t sell their house within the specified time, the contract for sale is annulled. Buyers appreciate this contingency because it lets them avoid the risk of carrying two mortgages and because many of them plan on using the money from selling their current home to pay for the new one.

A home sale contingency that benefits the seller operates similarly. The seller can include a contingency in the real estate contract that the contract will be annulled if the seller cannot find a suitable property to purchase within a specified period of time.

In addition to the above contingencies, various other types of contingencies address specific concerns, such as appraisals and title issues. Each contingency serves a unique purpose, allowing parties to address potential challenges in a controlled and fair manner.

Contact One Oak Legal

Contingencies are essential to real estate transactions, offering protection and flexibility to buyers and sellers. By including contingencies in real estate contracts, parties can navigate the intricacies of buying or selling property more confidently, knowing that there are mechanisms to address unforeseen circumstances. Contact One Oak Legal for help in structuring your real estate transaction.