The real estate market offers a wealth of opportunities. However, venturing into the world of real estate purchases can feel daunting, especially for first-time buyers. The contingency clause is an essential element in understanding the process. Here is what it offers homebuyers and sellers.

What is a contingency clause?

Consider a contingency clause as a safety net woven into your real estate purchase agreement. It outlines conditions that must be met before the sale becomes final. These conditions can protect buyers and sellers by allowing them to withdraw from the deal if specific circumstances arise.

Here are some examples of contingency clauses:

• Financing: This is an important one. The buyer makes the purchase contingent upon securing a mortgage for the property. If financing falls through within a specified timeframe, the buyer can typically walk away with their earnest money deposit refunded.
• Inspection: A thorough inspection by a qualified professional is essential. The contingency allows the buyer to renegotiate repairs, request seller concessions, or terminate the contract based on the inspection findings.
• Appraisal: Lenders require appraisals to ensure the property value meets the loan amount. If the appraisal comes in lower than the purchase price, the buyer may have the right to adjust the offer or withdraw.
• Home sale: This contingency is for buyers who need to sell their current home before purchasing a new one. It protects them from being stuck with two mortgages if their existing home doesn’t sell within a set timeframe.

Crafting your contingency clause

While standard contingencies exist, the specifics can be negotiable. You may coordinate with your realtor to tailor the clause to your situation. This includes setting clear deadlines for each contingency and outlining the steps to take if an issue arises. You may also consider consulting a legal professional when drafting or reviewing to ensure your contingencies are clearly worded and enforceable.

By understanding contingency clauses, you can confidently navigate the purchase process and secure your property with the necessary safeguards in place.