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Mortgage, Home Inspection and Appraisal Contingencies

In real estate contracts the contingency is a common element. Contingencies are clauses in a contract that give either the buyer or seller a way to get out of the contract if certain conditions or timelines aren’t met.  A commonly used example is that of a buyer making an offer on a new home before selling his existing home.  The buyer needs to sell his present home before being able to get financing on the new one.  So he makes his offer contingent upon the sale of his existing home.  There will always be a time period associated with such a contingency.  If the buyer is able to get his present home sold within that time period, the deal can go forward.  But if he fails to sell within the specified time period, the seller has the option of getting out of the deal.  In most cases, sellers won’t accept this kind of contingency, because they will most likely feel that they can find another buyer capable of closing the deal without needing to sell another home first.  But new home builders are often willing to accept an offer contingent upon the sale of an existing home.

Every contract can be unique. The possibilities for contingencies are virtually endless. Some of the more commonly used contingencies would include:

 Financing. Contingencies that depend on the buyer being able to obtain financing are very common. A Mortgage Pre-approval should accompany the offer so that the risk of this contingency can be minimized.

 Home Inspections. Probably the most common type of contingency is that of the satisfactory completion of a Home, Pest and Radon inspection. Resulting reports will typically be provided to both buyer and seller and if any repairs are needed, negotiations will take place to resolve the concerns.

 Appraisal. It's not unusual for a buyer to have a contingency that allows for a formal appraisal (that must come in at or above purchase price).  Mortgage bankers typically require an appraisal be done before the loan is completed.

Remember, just like everything else in real estate contracts, contingencies are negotiable.  Make sure you understand and are comfortable with all the contingencies included in your contract.  Likewise, take time to think about what contingencies you might like to have added.