Real Estate Contingencies: The Basics

Real Estate Contingencies: The Basics

If you’re buying or selling a home in Boston, your real estate agent will build contingencies into your contract. But what are contingencies and how do they work? This guide explains.

Real Estate Contingencies: The Basics

A contingency is a condition that must be met in order for a transaction to go through. The contingencies in any given real estate contract may apply to the seller or the buyer, and if they’re not met, either party can walk away from the deal without losing anything. The catch is these contingencies must be built into your real estate purchase contract. If they’re not, there’s no way to hold the other party accountable.

The most common contingencies include those related to:

  • Financing
  • Home appraisal
  • Home inspections
  • Sale of a current home
  • Title

Here’s a closer look at each.

Financing Contingencies in Real Estate

A financing contingency typically says that if a buyer can’t secure the funds to purchase a home, they’re off the hook – you don’t have to buy it. Naturally, the buyer must make a good-faith effort to get financing, but if it’s just not in the cards, the seller can’t force them to go through with the purchase.

Home Appraisal Contingencies in Real Estate

When someone takes out a mortgage to purchase a home, their lender will require them to pay for and appraisal. An appraisal is a professional opinion of how much a home is worth.

Generally, when an appraiser says a home is worth less than what a seller is asking for it, the lender will balk at the deal. Lenders don’t want to allow people to borrow more than a home is worth. That’s because doing so presents a bigger risk to the lender. however, many lenders will offer to allow buyers to borrow the amount the home is worth and leave them to come up with the rest of the money on their own.

That’s where a home appraisal contingency comes in. If the home a buyer wants to purchase appraises low (that is, the buyer’s lender says it’s worth less then what the seller is asking for it), a home appraisal contingency says the buyer doesn’t have to go through with the transaction. that helps protect the buyer from having to come up with potentially tens of thousands of dollars on their own.

Home Inspection Contingencies in Real Estate

When you buy a home in Boston, it’s smart business to have it inspected by a professional. Naturally, it’s up to you whether you want to hire A home inspector, but your real estate agent will most likely advise you to do so. Well that’s because an inspector can give you all the information you need to make the right decision on purchasing a home. If there are major issues (or even minor issues) with the home, the home inspector will most likely discover them.

If the inspector turns up something you simply can’t live with, a home inspection contingency may save the day. This contingency says that defects that come to light during the home inspection should be repaired by the seller. However, if the seller chooses not to repair the issues, the buyer gets to walk away from the deal with their earnest money deposit intact.

Contingencies About Selling a Home

Many buyers need to sell their current home before they can purchase a new one. For that reason, a real estate agent can build a contingency into a purchase contract that says the buyer needs to sell their home by a certain date – and If they can’t, they can exit the deal. That helps prevent people from being forced into two mortgages and owning two homes when they only want to own one.

Title Contingencies in Real Estate

A title contingency gives the buyer the right to pay for a title search. A title search is very important, because it can help head off potential issues in the future that stemmed from other people claiming some sort of stake in the home. During a title search, a title company will look for any conflicts of ownership, as well as any liens that may be placed on the home.

Why Do You Need Contingencies?

Your real estate agent will build contingencies into your contract to protect your Best interests in the transaction. It’s your real estate agent’s responsibility to look out for you, and that’s what they’re doing when they put contingencies in your contract. These contingencies give you a way out if things go south.

What Does it Mean to Waive Contingencies?

Some buyers choose to waive contingencies in their real estate to purchase contracts because they feel that doing so will make their offer more appealing to sellers. Though there’s no one-size-fits-all answer for whether you should waive contingencies, such as your home inspection contingency, it’s only appropriate in a handful of situations. If you’re thinking about waiving contingencies on any real estate contract, you should talk to your agent about the potential consequences first period

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