Contingencies create a way out of real estate contracts
You’ve signed the contract and transferred the earnest money, but just how binding is your real estate contract? That depends on the nature of any contingencies built into the agreement. For buyers, such contingencies provide an exit strategy if the house doesn’t live up to initial impressions.
Here are some common contingencies that could allow a buyer out of a real estate contract:
* Financing. The buyer may be unable to get financing from his or her lender, or unable to get financing within defined terms.
* Appraisal. This is another financing issue that comes into play if the house is appraised for less than the purchase price. If that happens, the lender may not be able to provide sufficient financing to close the deal.
* Inspection. This can cause issues if the home has significant flaws or repair needs that weren’t disclosed at the time of the offer.
* Buyer’s home sale. Under this contingency, the buyer must first sell his or her home before closing on the new property.
* Title search. A title search provides confirmation that the sellers have the right to sell.
While sellers can get some protection from a contingency (such as time limits on how fast the buyer must complete the deal), most are written to benefit the buyer and provide a way out if something unexpected happens before closing.
When contingencies aren’t met, buyers will usually get back any earnest money being held in escrow. However, if contingencies are met, buyers may be held to the terms of the contract.