Real Estate Contingency Clauses You Should Be Aware Of
Real estate contingency clauses. Sometimes a contingency clause is attached to an offer to purchase real estate. And therefore included in the real estate contract. Essentially, a contingency clause gives parties the right to back out of the contract under certain circumstances. Likewise, contingencies can include details such as the time frame. For example, “the buyer has 14 days to inspect the property”. Similarly, specific terms such as, “the buyer has 21 days to secure a 30-year conventional loan.” Thus, any contingency clause shall be clearly written so that all parties understand the terms.
An appraisal contingency protects the buyer and helps ensure a property’s value is at a specific amount. Conversely, if the property does not appraise for a specific amount, the buyer can terminate the contract. With this in mind, in many cases, the the buyer will receive their earnest money back. In the event the home does not appraise the seller has the option to lower the price of the home to the appraisal value. However, the buyer has the option to bring more cash to the table to make up the difference.
A financing contingency gives the buyer time to apply for and obtain financing for the purchase of the property. Therefore, this will provide important protection for the buyer. Who, by the way, can back out from the contract and reclaim their earnest money in the event they are unable to secure financing. Although this may be true, in Arizona a buyer must submit and Arizona Pre- Qualification form with their offer. Additionally, the lender will complete this form and it will state what type of mortgage and how much the buyer qualifies for.
Home Sale Contingency
Although, it is easier to sell one home before buying another home. Sometimes the timing and financing don’t always work out that way. So, a home sale contingency gives the buyer a specific amount of time to sell their existing home in order to finance the new one. Moreover, this type of contingency protects buyers. Because, if an existing home doesn’t sell for at least the asking price, the buyer can back out of the contract without legal consequences. Thus, this type of contingency can be difficult on the seller. Because, they may have to pass up another offer while waiting for the outcome of the contingency. Also, the seller retains the right to cancel the contract. This is if the buyer’s home is not sold within a specific number of days.
Real Estate Contingency Clauses. The inspection contingency or due diligence period. As a matter of fact, this gives the buyer the right to do a home inspection. Usually within a specific time period, such as ten days. After all, It protects the buyer, who can cancel the contract or negotiate repairs.
An inspector examines the property’s interior and exterior. Thus, including the condition of electrical, finish, plumbing, structural, and ventilation elements. Additionally, the inspector furnishes a report to the buyer detailing any issues discovered during the inspection. Therefore, depending on the exact terms of the inspection contingency, the buyer can:
- Approve the report, and the deal moves forward
- Disapprove the report, back out of the deal, and receive earnest money back
- Request time for further inspections if something needs a second look
- Request repairs or a concession (if the seller agrees, the deal moves forward; if the seller refuses, the buyer can back out of the deal and get their earnest money back)
The Bottom Line
First of all, A real estate contract is a legally enforceable agreement. Therefore, defining the roles and obligations of each party in a real estate transaction. Similarly, contingencies are clauses attached to and made part of the contract. Above all, it is important to read and understand your contract, paying attention to specific dates and deadlines. Because time is of the essence. After all, one day (and one missed deadline) can have a negative—and costly—effect on your real estate transaction. The Kolb Team has a full-time licensed real estate assistant to help with all steps of the transaction. Making sure you don’t miss any important deadlines, avoiding delayed closings and reducing your stress!
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