Real estate contracts can contain stipulations known as “contingencies” – conditions that must be met in order for the sale to proceed. These conditions can be added by either the buyer or seller. Here are some of the most common real estate contingencies:
Financing… the buyer’s offer is contingent on them being able to secure a mortgage to purchase the home.
An appraisal… an evaluation of the home’s market value. This is usually required by lenders.
A “home sale” contingency… this is common if the transaction depends on the buyer being able to sell their own home first.
A home inspection. This allows the buyer to have a professional evaluate the home’s condition and get out of the contract – or demand repairs – if problems are found.
Other contingencies can be added for specific inspections and testing… such as for the presence of mold, radon, or lead paint.
While contingencies can be used as a negotiating tool by either the buyer or the seller, they’re typically designed to allow a buyer to back out of the sale if something goes wrong. However, sellers tend to look more favorably on a contract with fewer contingencies – so only use them when necessary.