What are contract contingencies?

Buying a home can be an exciting, but also stressful, experience. One aspect of the process that can help alleviate some of that stress is the use of contract contingencies. In this post, we’ll explore what contract contingencies are and why they are important when buying a home.

Contract contingencies are conditions that must be met in order for a real estate transaction to move forward. These conditions can be added to the purchase contract by either the buyer or the seller. Some common contingencies include:

Inspection Contingency: This contingency allows the buyer to have the property inspected by a licensed inspector to identify any issues that may need to be addressed before the sale is finalized.

Financing Contingency: This contingency allows the buyer to back out of the sale if they are unable to secure financing for the purchase. In our Arizona Association of Realtors® forms this contingency does not allow for buyer’s to cancel the contract without forfeiting earnest money, based on interest rates or inability to secure down payment funds.

Appraisal Contingency: This contingency allows the buyer to back out of the sale if the property appraisal comes in below the agreed-upon purchase price. The appraisal contingency is automatic in our AAR contract if the home is to be financed. If purchasing the home with cash the buyer needs to add an addendum asking for an “All Cash Appraisal Contingency”. The Sellers can ask for appraisal contingencies to be waived by a buyer.

Title contingency: This contingency allows the buyer to back out of the sale if there are any issues with the title to the property, such as liens or other encumbrances.

Buyer contingency: This contingency allows the buyer time to sell a home if it’s required to make a subsequent purchase. If the buyer is unable to sell their home within the allotted timeframe they can back out and recover their earnest money. However, there is one caveat to this contingency, another buyer can make an offer without a Buyer contingency and bump the original buyer from the transaction if the original buyer cannot remove or waive their contingency in 3 days or whatever timeframe was agreed upon in the contract.

Contract contingencies are important because they provide a level of protection for both the buyer and the seller. For the buyer, contingencies ensure that they are not stuck with a property that has significant issues or that they cannot afford. For the seller, contingencies provide a measure of certainty that the sale will go through as long as the conditions are met.

The Stidham Team can help you navigate the process of buying or selling a home. We understand the various contingencies available and know how to leverage them to make your transaction a success! Call us today to schedule find out how we can help you!

Sources:

• “Contingency Clauses in Home Purchase Contracts.” Nolo, 15 Oct. 2021, https://www.nolo.com/legal-encyclopedia/contingency-clauses-home-purchase-contracts.html.
• “Contingencies in a Real Estate Contract.” Investopedia, 28 Aug. 2020, https://www.investopedia.com/terms/c/contingency-clause.asp.
• “Understanding Home Purchase Contingencies.” Rocket Mortgage, 11 Jan. 2022, https://www.rocketmortgage.com/learn/home-purchase-contingencies.