How to Deal with Contract Contingencies

Nearly every real estate contract contains contingencies. How you deal with a real estate contract contingency might make or break the sale of your home. Some contingencies are easier to deal with than others, of course. Generally speaking, the faster you can fix the issues or make the accommodations stipulated in your real estate contract, the sooner your home can be sold.

What is a Real Estate Contract Contingency?

A real estate contract contingency is any condition outlined in the contract that must be met prior to the sale of a home. These stipulations exist to protect both buyers and sellers. If any of these conditions are not met, the contract would be void and the sale might not be able to move forward.

Common real estate contingencies include mortgage contingencies, which state that a mortgage loan must exist for the contract to move forward, and a home inspection contingency, which protects the buyer by requiring the house to be checked by a certified home inspector before the sale can move forward. In the case of a mortgage contingency, the stipulation is removed from the contract as soon as the loan is obtained. If a buyer cannot obtain a loan, they are usually able to gracefully exit the pending contract without penalty.

For a contingency like the home inspection requirement, once documentation of the check is obtained, the contract can proceed. If the home inspection finds faulty wiring, pests, structural damage, or other major problems with the property, the buyer can exit the contract without penalty. In this instance, the buyer would also receive any deposits or earnest money back. Alternatively, the buyer can request that repairs be made at the expense of the seller. If the seller does not wish to proceed and make the repairs, they can choose to void the contract. This again necessitates a return of all of the buyer’s deposits.

Another contingency that is often placed in a real estate contract involves the sale of the buyer’s current home. This stipulates that the buyer has a certain amount of time to sell their current home before purchasing a new one. If the home does not sell during that set period of time, the contract is voided. This protects the buyer from a scenario wherein they have to purchase a home they’re under contract for while they still have a mortgage on or equity in an old property. In a cash-poor situation like this, many buyers would not be able to obtain a mortgage or pay all-cash for a home, regardless.

Dealing with Contract Contingencies

As the seller, it’s important to have a real estate agent and attorney you can trust. These parties may review your contract with you and point out any contingencies that could prove problematic to you. If you know, for instance, that the home you are selling needs a new roof, chances are good you’d have to disclose it anyway.

However, under those circumstances, it’s important that a contingency for home inspection be worded properly and allow for the buyer to take possession of the home and then make their own repairs, in exchange for a lowered purchase price. This sort of phrasing can be critical if you’re a seller with a timeline for leaving your current property. You may not be able to wait to vet roofers and make the repairs yourself.

Similarly, if you are willing to accept an all-cash offer for a home so that you can move on more quickly, you should verify with your real estate agent that the contract is not contingent on the buyer having a mortgage loan in hand. There are unique issues that arise in all-cash deals, but if you are comfortable with that sort of arrangement, your contract will need to reflect it.

Most real estate contracts are fairly standard, but it’s always possible you are dealing with an inexperienced or even unscrupulous buyer and buyer’s agent. For this reason, and to protect your best interests in general, you should carefully review any contract you are considering signing. After all, it’s much easier to walk away before you have signed something than to have to find a way out of an executed contract later.