The 4-1-1 of Contingencies
A word that anyone who is going through a house sale should know is “contingency.”
And along with that, understand that just because a bid is accepted, doesn’t mean that the deal is going to go through.
How it works: A bid is made with the understanding that it is contingent on having the house inspected, with the buyer needing to approve the results. Contingencies are part of any standard contract and define the efforts that must be done before a deal is finalized in addition to the inspection, such as financing, insurance and agreed-upon repairs.
All of this is necessary because if something that was agreed upon is not done as stated, the potential buyer has an out. For instance, suppose the sale was contingent upon the seller taking out the living room carpet or fixing a crack in the chimney, and those weren’t done by closing time, well then, the buyer is not required to go through with the deal.
There’s also something called a financing contingency, which is on the onus of the buyer, and states that they must secure an acceptable mortgage or obtain other means of financing to buy the home. This becomes a safety net for the seller that ensures the sale will go through. If not, an agreed-upon fine will be imposed, and the seller can re-list the home.
Then, there’s an insurance contingency that ensures the house and new buyers will be able to get insured. This isn’t as prevalent, but for those buying in areas with a history of toxic mold, earthquakes or floods, insurance carriers no longer automatically issue a policy, so the contract can be contingent on applying for and receiving an insurance commitment in writing.
Other popular contingencies include the seller asking that the deal be made contingent on him or her successfully buying another home, or the buyer making the deal contingent on selling his or her own home.
A home sale contingency can be risky to sellers as there’s no guarantee that the other home will eventually sell. Even if the contract allows the seller to continue to market the property and accept offers, the house may be listed “under contract,” making it less attractive to other potential buyers.
Obviously, the most significant part of any contingency is putting it all in writing. Your REALTOR® will be able to lead you through what needs to be done.
A home transaction is one of the most important things you may ever do, so make sure you take all the proper steps to ensure you get what you pay for.