Most, if not all, real estate contracts have contingencies that will allow the buyer (or sometimes the seller) to terminate the agreement if investigation reveals that the property is not worth the price or if the property has defects that the buyer wants the seller to repair.
These contingencies are conditions that must be met to close the real estate deal. Contingencies can be approved, rejected or waived. In many cases, the price can be renegotiated and the repairs can be agreed upon. But if sellers and buyers cannot reach agreement, contingencies will result in a voidable contract.
The most common types of contingencies include:
• Property sales contingency – where the purchaser must sell his or her current home before closing the transaction on the home they are buying.
• Mortgage contingency – which allows the buyer a refund of the earnest money deposit if the lender does not commit to the mortgage (this can happen if the buyer is not fully approved).
• Inspection contingency – which allows the buyer to inspect the property to ensure that there are no major defects, items that require repair, or systems that need to be certified in good working condition.
Inspection contingencies are sometimes more difficult to negotiate, as they can be both objective and subjective. For example, if the air conditioning system is 10 years old but still working fine, the buyer might want the system to be inspected by a licensed HVAC specialist. Based upon that inspection, the buyer might request that repairs be made or that a new system be installed.
Other types of contingencies for the buyer include:
• Approval of property lines and lot size according to a survey
• Property appraisal comes in less than the contract price
• Review and acceptance of restrictive covenants or deed restrictions
• Review of any leases between the current owner and tenants
• Buyer needs to sell another property to complete the purchase
• Verification that there are no environmental or mold problems
If a buyer has too many contingencies, the seller may demand an escape clause, allowing the seller to continue marketing the property, and accept another offer if the contingencies have not been resolved or removed.
Larry Stoller is a broker and Realtor with Real Estate Five of the Lowcountry. Larry@RealEstateFive.com, RealEstateFive.com, Sun CityOpenHouses247.com