What are Contingencies in a Real Estate Transaction?

After the purchase agreement and appropriate disclosures and addendums are signed and the earnest money deposit has been made, we move into a phase of the transaction called the due diligence phase. This is the time when everyone updates their insurance company and post office of the upcoming move, the final packing and touch-ups around the home happen, etc etc., and ultimately, all contingencies need to be addressed.

Contingencies in a real estate transaction refer to specific conditions that must be met in order for the sale to proceed. If any of these contingencies are not met during the contingency period defined in the purchase agreement, the buyer may have the option to back out of the sale without penalty and take back their earnest money deposit. It's important for both buyers and sellers to have an Agent carefully considering these things and negotiating these contingencies to protect their interests in the transaction.

Here are a few examples of contingencies in a residential transaction -

1. Financing contingency: This allows the buyer to back out of the sale if they are unable to secure a mortgage loan.
2. Home inspection contingency: This gives the buyer the right to have a professional inspection of the property and to request repairs or negotiate the price based on the findings.
3. Appraisal contingency: This allows the buyer to cancel the sale or renegotiate the price if the home does not appraise for the agreed-upon amount.
4. Sale of current home contingency: If the buyer needs to sell their current home in order to purchase the new one, this contingency allows them to back out of the sale if their home does not sell within a specified time frame.
5. Title contingency: This ensures that the property has a clear title and that there are no legal issues or claims against it.
6. Homeowners association (HOA) contingency: If the property is part of an HOA, this contingency allows the buyer to review the HOA documents and rules before committing to the purchase.

Here are a few examples of contingencies in a commercial  transaction -

1. Due diligence contingency: This allows the buyer to conduct a thorough investigation of the property, including reviewing financial records, leases, environmental reports, and zoning regulations. 2. Financing contingency: Similar to residential transactions, this contingency gives the buyer the option to back out if they are unable to secure financing for the purchase.

3. Inspection contingency: This allows the buyer to inspect the property for any structural issues, code violations, or other concerns that may affect the value or usability of the property.

4. Title contingency: Ensures that the property has a clear title and that there are no legal issues or claims against it.

5. Environmental contingency: If the property is potentially contaminated or has environmental issues, this contingency allows the buyer to investigate and address any concerns before finalizing the purchase.

6. Tenant contingency: If the property is leased to tenants, this contingency may allow the buyer to review and approve existing leases, rental income, and tenant agreements before closing the deal.

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• Residential (7)
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• Contingencies (1)
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