Real estate contracts usually include clauses. Contingencies are common clauses in a contract. Essentially, a contingency gives the buyer or seller a way out of the contract. Reasons to exit a contract might include unmet conditions or timelines.
Every contract has unique elements. There’s no limits to what contingencies are added. There are, however, common contingencies issues can arise.
The property doesn’t appraise high enough
When purchasing real estate property, the buyer often turns to a bank for financing the purchase. Lenders nearly always want an appraisal performed before approving a loan.
While this is a normal step in the purchasing process, issues can surface when the property doesn’t appraise high enough. Therefore, the lender can refuse to finance the property.
If this happens, the seller can request a second appraisal from someone else. Otherwise, the seller can renegotiate the sales price. You have a right to cancel the contract if the seller chooses to not try either of these options.
A home inspection reveals property damage
Most real estate contracts come with home inspection contingencies. This protects the buyer against damage that could hurt the property value. A buyer is usually given a certain time frame to have the property inspected.
The agreement allows a buyer to pull out of the contract if they aren’t happy with the condition of the property post-inspection. The buyer and seller may also need to negotiate who will pay for repairs.
While contingencies can be beneficial, they can also cause some problems. It’s always wise to have a lawyer review your real estate contract before anyone signs. Real estate sales and purchases are extremely significant, and a lot can be on the line. You will want to ensure the process is executed properly.