If buying or selling a home, there may be contract contingencies in real estate. Understanding a contingency is important. It could cost the deal from closing if it is not fully understood. It could even cost a deal from closing if they are not stated. Showing contingencies from the start are extremely important for all parties involved in a real estate transaction.
What are Contract Contingencies in Real Estate?
Understanding contract contingencies in real estate are crucial for both sides of the transaction. If that is the case then you are going to want to know what type of contingencies are in place or set forth in a transaction. Below you will see the most common contingencies in today’s market.
- Home sale
- Appraisal
- Financial
- Inspection
These are the four most common contingencies in real estate. Each one has its own meaning and stipulations. As a seller, you should completely understand each one before signing an agreement of sale. As a buyer if you are in need of using one of these, you should understand it before putting it into your contract.
Home Sale Contingencies
When you have a home sale contingencies in a contract. It means that the person buying or selling a home can only do place in the event of a buyer or seller finding or selling another home. Typically, if a seller is contingent on a home sale. They are stating they have to wait for their next home to become available before they can close. They can not close unless the sale of the subject property goes through.
When a buyer is contingent on a home sale. It means they are waiting on the sale of their current residence before they can close on the subject property. It is harder to get offers accepted when you have this type of contingency in place as a buyer. There are some times ways around this. You can use storage to store belongings and move into a friend’s or family’s home temporarily.
Appraisal Contingencies
If you are making an offer, typically in a competitive market, you may come in with an aggressive offer. Just because you offer a high number over asking does not mean the appraisal will come back the same. Some people will put an appraisal contingency in their offer to make up for any difference in price.
If your home appraisal comes back $20,000 less them your offer price. It might be helpful to have that appraisal contingency in place. The buyer approved by the lender up to that appraised amount. By having this contingency in place, you will be able to negotiate the sales price or even withdraw from the deal.
Financial Contingencies
There are many contractor contingencies in real estate, but financial contingencies common one used. Because not always guaranteed that financing will come through for a buyer. By using a financial contingency it is allowing the seller knows that the deal is based on the buyer obtaining financing from a lender. You see it with just about every offer. Typically, a cash buyer will not use it as a contingency in their offer since they have the funding.
Common Inspection Contingencies
Another common one is an inspection contingency. Every buyer has the right to an inspection. Even though sometimes a seller will only allow a buyer to do inspections for informational purposes. When a buyer uses the inspection contingencies, there are several that show up on a real estate contract in Pennsylvania.
- Home/Property inspections and environmental hazards. (Such as mold and structure)
- Wood infestation
- Deed restrictions and zoning
- Water service
- Radon
- On lot sewage (if applicable)
- Property and flood insurance
- Property Boundaries
- Lead-based paint
Home Property Inspections and Environmental Hazards. This one will cover mold, wet plains, asbestos, underground storage tanks etc. As well as any major plumbing, structural, roofing ,and siding issues. It pretty much protects the buyer from many major common issues that can be wrong with a home.
Wood infestation will cover if the home has rotted joists or wood frame decay from termites or any wood-destroying pest. Termites can be very dangerous to the wood structure of a home.
Deed restrictions and zoning will help the buyer identify the usage of the property. To make sure it is up to usage with any state and local zoning ordinances. Sometimes properties are used differently from what they are intended.
Additional Property Inspection Contingencies
Water service will cover where the buyer may obtain an Inspection of the quality and quantity of the water system from a properly licensed or otherwise qualified water/well testing company. It is very common in a home that has its own water system.
Radon is a naturally occurring, radioactive gas produced from the breakdown of uranium in soil and rock. Since it is found in soil it usually in a home’s basement. It is very common in homes. Since it colorless, odorless and tasteless people tend to make sure it is a contingency.
On lot sewage and flood are two different inspections people get done. But they are only common in certain homes. Not every home is in a flood zone. So it is usually only common to worry about if you are by water. Another common one is lead based paint.
Every home built before 1978 has the potential for lead based paint. Yes, many homes in Pennsylvania are newer than 1978. But a large majority is older and subject to having lead-based paint.
These are each inspection contract contingencies in real estate. Not every single one applies to every home. If any of these are checked off on your agreement, then the buyer is stating they will come after the seller for cost and repairs. Your agent should have a good understanding of each one. That way, you know what type of contingencies are showing up in your agreement of sale.
You Need to Understand Contract Contingencies in Real Estate
Finally, after reading this article, you have a better grasp of what contract contingencies are. If you choose the right realtor they can help guide you through each one. The more your agent knows, the better off you will be from making a mistake. Contingencies can cost a home from closing, as well as lawsuits. However, being prepared as best you can will help the deal from falling through.