When buying a home, understanding and using real estate contingencies is essential to protect your interests and navigate the complex process.
The thing is, you may never have the need for any of these. Some real estate contingencies are used to ensure a transaction happens, while other may prevent something from happening that could cause stress in a contract.
Most real estate contingencies are in place to ensure conditions are met before entering a contract.
Here are the eight common contingencies and how to employ them to your advantage:
- Home Inspection Contingency: This contingency allows you to hire a professional inspector to assess the property’s condition. If issues are found, you can negotiate repairs or a price reduction. Real estate contingencies like this one is to ensure you’re aware of any hidden problems and can negotiate for a fair deal. The inspection is the most-used contingency that’s part of your right to conduct due diligence.
- Appraisal Contingency: This one protects you in case the property’s appraised value is lower than the purchase price. You can renegotiate the price or back out of the deal. Utilize this to prevent overpaying for a property.
- Financing Contingency: Ensures the deal depends on securing a mortgage. If you can’t secure financing, you can walk away without penalties. Use this to safeguard your financial interests and prevent committing to a purchase you can’t afford.
- Home Sale Contingency: If you need to sell your current home to buy a new one, this contingency allows you to cancel the deal if your home doesn’t sell. It provides peace of mind when making a move. However, during and post pandemic, this one has been non-existent. In a sellers market as strong as the past few years, home sell too fast and sellers will not accept such a delay due to the amount of demand in the marketplace.
- Kick-Out Clause: As a seller, include a kick-out clause that lets you accept a better offer if one comes along before closing. This gives you leverage when negotiating.
- Home Sale and Settlement Contingency: This contingency allows the seller to accept a better offer before closing. As a buyer, be prepared for potential competition and offer attractive terms.
- Title Contingency: Ensures the property has a clear title. If title issues arise, you can delay the closing or withdraw. Use this to protect your legal rights.
- Mortgage Contingency: Protects your deposit if you can’t secure a mortgage. It’s a safeguard for your financial investment.
- Home Insurance Contingency – that’s right. With homeowners insurance in Florida rising over 42% in the last year, a buyer is protected if a) they cannot get insurance, or b) if the price is prohibitive.
To use these real estate contingencies the right way, it’s crucial to work with a knowledgeable real estate agent or attorney. We can help you draft the contingencies into your purchase contract, ensuring they are clear and fair. Additionally, keep open communication with the seller and be prepared to negotiate when contingencies reveal issues.
Real estate contingencies are powerful tools for buyers, allowing them to navigate the home buying process with confidence. By understanding and utilizing these contingencies, you can protect your interests, make informed decisions, and secure the best possible deal when purchasing a home.
