4 Common Real Estate Contingencies and How they Work for You

When purchasing or selling real estate, contingencies are your protection. A deal’s contingencies are pre-set terms that must be met in order for the transaction to move forward. These ‘make it or break it’ points stand as powerful security measures set in place to protect everyone involved in a deal - both buyers and sellers alike. 

While they instill key benefits for all, let’s take some time to look at contingencies from a buyers’ perspective. When submitting an offer to purchase a home, buyers have the right to request the contingencies they’d like to include in the transaction. It’s key that buyers understand what contingencies they’d like to add, what they mean, and just how useful these terms and conditions can be.

We’ve listed 4 common contingencies, how they benefit buyers, and why they’re important. Let’s jump in: 

Appraisal Contingency

Home appraisals are used to determine the perceived value of a property. The appraisal contingency enables buyers to renegotiate the contract price should the appraisal value come back lower than the previously agreed-upon sales price. 

In most cases, if the buyer is financing the property, it’s also required by mortgage companies. Mortgage lenders use the appraisal contingency to protect themselves, ensuring that they don’t loan out more than the value of the property. Lenders won’t want to loan borrowers more than the officially appraised value. A buyer could, however, make up the difference with cash, should they want to proceed with the purchase. 

House Sale Contingency

Also referred to as ‘sale of current home’, this contingency is important for any buyer that’s selling their current home and purchasing a new one. House sale contingency’s set the buyers’ contract up in such a way that the deal depends on the selling of their current home. If for some reason a buyer’s property doesn’t sell, they have a way out of their new property purchase. 

Loan Contingency

Financing contingencies are a key element for buyers’ using mortgages to purchase their new home. This contingency gives buyers the time to apply (and be approved for) their loan before purchasing their new home. 

Remember - loan pre-approval letters don’t mean that you’re guaranteed the financing. Loan agencies will still take a deeper look at your borrowing qualifications, the property, and other key elements that may affect your mortgage. A loan contingency provides buyers with security to request more time to properly finance their mortgage. 

Home Inspection Contingencies

Inspections are a huge part of any property purchase. This contingency allows buyers to back out of a deal if they’re unsatisfied with inspection results. It also enables buyers to renegotiate terms, such as repairs or price points, based on the inspections. 

Seller statutory disclosures fall into this category. Selling a property in California requires the disclosure of all known material facts within a Transfer Disclosure Statement, also called Sellers’ Disclosure. Buyers can request this paperwork as apart of the inspection contingency as it will reveal the full history of a property as well as its current state. 

Want to learn more about seller’s disclosures? Check out our blog!