Working in the real estate world means being fully aware of all aspects surrounding buying and renting real estate properties. One of the most important aspects of real estate is the concept of contingency.
But what exactly does it mean? A contingency clause allows everyone involved in a real estate contract to deter from going forward if particular outlined conditions aren’t fulfilled. If parts of the contract aren’t entirely compliant with the predetermined requirements, the agreement can be considered void.
To learn more about contingencies and how to use them, continue reading our article as we break down the basics of each. Moreover, we’ll match you with the finest real estate lawyers in NYC to handle all your real estate-related matters.
What Does a Contingency Mean for Real Estate?
There are different types of contingencies in real estate, such as home inspection contingency, mortgage contingency, appraisal contingency, and sale contingency. Each clause protects the buyers’ and sellers’ interests if they need to back out from a contract if some (or all) of the predetermined terms aren’t adhered to.
A real estate lawyer in NYC might be able to explain the concept of real estate contingencies in a few words. So, as the name suggests, contingency is a matter that depends upon particular circumstances. For example, when a real estate agent lists a house as contingent, an offer has been accepted, but specific criteria must be met before closing the deal.
To paint a better picture, let’s assume you have been proposed a price for the house you want to buy, and you accept the amount, under the condition the home inspection goes well – that’s a contingent real estate deal. In such a scenario, whether the house gets sold depends on the inspection of the asset.
Most Common Types of Contingencies in Real Estate
Due to the real estate market growing bigger by the minute, the need for updating or altering the rules and regulations emerges, leaving both buyers and sellers perplexed with all the definitions and uses of regulations.
Most commonly, there are four types of contingencies in real estate, such as those revolving around home inspections, mortgages, appraisals, and sales.
Home Inspection Contingency
When it comes to home inspection contingency, a home inspector can examine the home’s factual condition and review details that are not otherwise visible or known to the buyer, such as flashing or grading.
If the inspection discloses substantial flaws within the house that haven’t been clearly stated in the contract, the buyer is allowed not to go forward with the purchase. However, if both parties consent, they can agree on who will pay for the reparations.
Mortgage Contingency
Invoking the right to mortgage contingency allows the buyer a so-called grace period to secure the funds to make the purchase. However, there are designated deadlines to be followed to ensure ethical conduct.
Before using mortgage contingency, a buyer must ensure they are pre-approved for the mortgage. Even though the paperwork needed for pre-approval can be lengthy, buyers still go forward with it since the contingency clause will allow them substantial time to ensure everything is in check.
This type of contingency is mainly used by buyers with no substantial employment gaps and those with a good credit score.
Appraisal Contingency
Regarding the appraisal contingency, it’s essential to know that it’s linked to taking on a mortgage. Essentially, it is a requirement in the purchase contract that enables buyers to withdraw from the contract if the home is appraised for a lesser sum than the one the seller is requesting.
Depending on the agreement between the parties and if the appraisal is lower than the listed price, the buyer can call upon lowering the cost to reflect the current market value of the asset in question.
Sale Contingency
The sale contingency, also known as home sale contingency, is a clause that enables the buyer to “postpone” the purchase after their own home is sold, and the secured funds will be used to purchase the initial property.
It isn’t rare that homebuyers start looking for a new home before selling their first, which is when sale contingency comes into play. Thanks to the conditions outlined in the sale contingency clause, the buyer and the seller can agree on a designated date by which the buyer will sell their house and use the money to buy the property. However, if the buyer’s house is still not sold, the seller can terminate the contract and move forward with another interested party.
When to Make Use of Real Estate Contingency
Practically, real estate contingency clauses protect the buyer from not-as-advertised properties. Moreover, this type of contingency comes in handy when a buyer is faced with unpremeditated issues like foundation issues, plumbing faults, etc.