Contingencies Explained

In a real estate transaction, contingencies are conditions that a buyer can request to be fulfilled within a certain timeframe for a deal to be considered. Examples of typical contingencies include inspection, financing, and appraisal.

Inspection Contingency

The inspection contingency allows the buyer to hire a professional inspector to thoroughly examine the property for any potential issues. If any problems are found in the inspection report, the buyer has a few options. The buyer can request repairs, a credit to fix said repairs, negotiate a lower price for the property or, or even walk away with their earnest money altogether. Without this contingency, the buyer could be stuck with a property that has hidden issues and no leverage to address them. I’ve never represented a buyer who waived this contingency.

Financing Contingency

The financing contingency protects the buyer in case they are unable to secure a loan for the property. Without this contingency, the buyer could lose their earnest money deposit if they are unable to obtain financing. Contingencies are also useful for obtaining cash funds. For example, if you were trying to sell a property and use the cash from the sale to fund a new purchase. In this scenario, you may want to make the purchase of a new property contingent on selling the first one, allowing for a smooth sale and purchase all at once. If you are receiving financing with a mortgage lender, I always recommend speaking with them as well as your realtor about this contingency.

Appraisal Contingency

The appraisal contingency allows the buyer to ensure that they are not overpaying for the property. If the appraisal comes in lower than the agreed-upon price, the buyer has a few options. The buyer can either negotiate a lower price or walk away from the deal safely.

Navigating the Market

When it comes to contingencies, weighing the pros and cons of each is crucial for buyers. While removing contingencies may make an offer more attractive to the seller, I believe it is important for the buyer to protect themselves and their investment. Working alongside a Realtor can be beneficial in making informed decisions. That’s where I come in. If you have any questions, I’d love to have a conversation.