Contingency: What Does It Mean in Real Estate?
When it comes to real estate, the term ‘contingent’ can be confusing. It may sound like a technical term, but it’s actually quite simple to understand. In this blog post, we’ll explain what contingent means in real estate and how it can affect your buying or selling process. With a better understanding of contingent, you can make informed decisions when it comes to navigating the real estate market.
What does contingent mean?
In real estate, the term refers to an offer that has been made but the sale is not yet final. This means that before the sale can be finalized, certain conditions must first be met. These conditions are usually listed in the contract that is signed by both the seller and buyer when an offer is accepted. A contingent offer is considered a legally binding agreement between the two parties, however it is conditional until all the conditions are met.
Contingencies are generally used to protect either the buyer or seller from unforeseen circumstances. For example, the buyer may include a contingency in the offer that requires their current home to sell before they can close on the new one. In this way, the buyers are protected in case their current home does not sell. These conditions help to give both the buyer and seller time to make sure all of the details of the sale are in order before closing on the property.
Why do contingencies matter?
When it comes to real estate, contingencies are incredibly important and can significantly impact the outcome of a sale. They can provide an escape clause for both buyers and sellers so that they can back out of the deal if certain conditions are not met. As a buyer, contingencies allow you to make sure that the property is what you expected before you fully commit to it. As a seller, contingencies can ensure that you receive the funds you need before transferring ownership.
Contingencies also offer protection from potential surprises after the sale has gone through. For example, if there are any unexpected issues with the property or financing falls through, contingencies can provide a way for buyers or sellers to back out without facing serious legal repercussions. By providing a safety net, they can help both parties feel secure when engaging in real estate transactions.
How long does a contingency last?
When it comes to real estate, these conditions are used to protect the buyer and seller from potentially unfavorable outcomes. Contingencies are usually written into the purchase contract, but they can vary in duration depending on the situation. Generally, a contingency is in effect until it is either removed or expires.
The length of the contingency period typically depends on what type it is. For example, if it is a financing contingency, it usually lasts up to 30 days or longer and gives the buyer time to secure a loan or other financing before the deal can move forward. On the other hand, if it is an inspection contingency, it typically lasts up to 14 days and allows the buyer to conduct inspections and negotiate repairs with the seller. (Check the contract!)
In most cases, contingencies are time-sensitive and must be resolved within a certain time frame in order for the deal to move forward. If the contingency is not met by the specified date, the buyer or seller can back out of the deal without any repercussions. Therefore, it is important to be aware of all contingencies in your real estate contract and make sure that all deadlines are met. In Tennessee, the time limit is generally explicit in the contract.
What are some common contingencies?
When buying or selling real estate, a common contingency is the home inspection. This gives both the buyer and seller the assurance that the condition of the home is satisfactory. Other common contingencies include the appraisal contingency, loan contingency, title contingency, and seller concessions.
The appraisal contingency means that the price of the home must meet the appraised value for the purchase to move forward. The loan contingency is for buyers who may need financing to purchase the property. This means that the buyer must be approved for a loan in order to complete the purchase.
The title contingency gives buyers peace of mind that the title is clear and not encumbered by any liens or judgments. The seller concession contingency allows buyers to request certain items from the seller such as repairs or closing costs.
These are just some of the common contingencies used in real estate transactions. Knowing which apply to you can help make the process smoother and more efficient for everyone involved.
How can you remove a contingency?
In Real Estate transactions, a contingency is an agreement between the buyer and seller that outlines conditions that must be met in order for the sale to close. These conditions in the contract can be used for a variety of reasons, including the buyer obtaining financing or performing due diligence on the property.
While contingencies can be beneficial for buyers, they can also prevent the sale from closing if they are not removed in a timely manner. If a contingency is not removed within the specified time period, the seller may be able to terminate the contract and seek another buyer.
Fortunately, there are ways to remove contingencies and make the sale happen. The most common way to do this is to ensure that all of the conditions outlined in the contract are met before the specified deadline. For example, if the contract states that the buyer needs to secure financing by a certain date, the buyer should ensure that they have secured financing prior to this date.
It’s also important to note that some of these conditions can only be removed with the cooperation of both parties. For instance, if the contingency requires the buyer to obtain a loan from a particular lender, the seller may need to agree to extend the deadline for obtaining financing so that the buyer has more time to secure it.
Finally, it’s important to remember that contingencies are only binding if they are agreed upon by both parties and they are in writing. If any changes need to be made to an existing condition in the contract, it should be done in writing and signed by both parties before it takes effect.
Removing contingencies in Real Estate transactions can be tricky, but with proper planning and negotiation, it can be done. By ensuring that all conditions outlined in the contingency are met and seeking the cooperation of both parties when necessary, buyers and sellers can move forward with the sale and make it a success.
Are there any risks to having a contingency?
When it comes to real estate, having a contingency in place can be a great way to protect yourself, but it’s important to be aware of the risks that may come along with it. One of the main risks is that if you are relying on a contingency to close the sale, the deal could fall through if any of the conditions aren’t met. This could mean that all of your time and effort has gone to waste, and you may not have another chance to buy or sell the property. Additionally, these conditions can sometimes cause delays in closing, as each condition must be fulfilled before the deal can move forward. It’s important to discuss your concerns with a qualified real estate agent and lawyer before entering into a contract with contingencies.