Contingencies within a real estate contract allow buyers to withdraw from an offer without losing their earnest money under certain circumstances. Often, these contingencies come with time limits and other restrictions that prevent their abuse.
Annie Kremer with Ebby Halliday Realtors says with the healthy market, Realtors have been seeing less of these contingencies of late. However, a few common ones still surface in many contracts.
Kremer said a contingency based on the sale of another property is somewhat common. This occurs when a buyer needs to sell their current home in order to have the funds to purchase the new one. She said when the market is good, sellers are not likely to accept a contingency like this, and it is essential that they already have a contract on their house to be seriously considered.
Cory Meals with RE/MAX Signature Properties explained that another common request is for a financing contingency. This allows a certain number of days after the contract is executed for the buyer to secure financing. If during this time they are unable to procure proper financing, they are able to withdraw the offer without losing their earnest money.
However, Kremer cautions buyers to be careful. After an offer is accepted and a contract is executed, things like inspections, appraisals and surveys are usually ordered. Once these items are conducted, the buyer will be responsible for their payment regardless of if they back out of the contract or not.
Although buyers are almost always prequalified for the loan, as the loan process continues issues may arise that would prevent them from gaining financing. Kremer continued by saying new processes may allow buyers to begin the lending process before making an offer on a home, eliminating some of this worry.
A third contingency sellers might see is in regard to restrictions. Meals explained that some properties have restrictions preventing the construction of certain structures or requiring certain parameters be met for new construction.
Buyers who seek to make improvements may request a contingency that would allow them the opportunity to back out if they discover certain restrictions on the property.
“It is really important for buyers to read their title commitment when they get them,” Kremer said. “They may not realize certain restrictions until they receive that. A lot of people find it too long and won’t read it, but it’s really important that they do.”
Both Meals and Kremer agree that offers are stronger without contingencies, particularly in multiple-offer situations.
“If you’re looking at similar offers you are likely to go with the one that doesn’t have a contingency,” Meals said. “The other thing that could impact the situation is (if) it’s a much higher offer and the seller isn’t in a hurry. Then they might be able to take the offer with the contingency.”
Above all else, Meals recommends seeking a professional who is familiar with the kind of contingency the buyer needs. He explained the process can become very complicated, and it is best to make sure the agent is familiar with the process.