Contingencies are a part of buying and selling homes and without them, real estate transactions may turn risky. Even though contingencies seem like a hurdle for buyers and sellers, it is a way of safeguarding a deal. Through a contingency, a layer of trust can be added to the purchase agreement. Generally, real estate deals comprise three contingencies but before that, you need to know what a contingency involves.
Things to know about real estate contingency
Typically, contingency clauses in a purchase agreement specify all those elements that make the contract legally binding. However, the buyer and the seller need to agree to the terms of the contract to make it valid. Besides, the contingency agreement may also lead to the cancellation of the agreement to which the buyer and the seller agree under specific conditions. Consulting with a lawyer for home purchase reveals the true nature of a contingency clause and the following aspects:
- Contingencies are timed and the buyer needs to adhere to the rules to meet the conditions of a clause within that time frame.
- Failing to meet the conditions of the clause will not leave many options.
- Contingencies prefer the buyers more and help them gain leverage over the seller and safeguard them from unexpected incidents.
- A contingency clause ensures that buyers and sellers follow the terms of the contract and prevents both parties to take advantage of each other. If you are a home buyer, you may consult with a real estate lawyer Kelowna to find out how to deal with competitive real estate markets.
Including contingencies in a real estate contract allows you to come out of it under specific circumstances.
Types of contingencies
Contingencies need to be written in the contract to ensure that the parties involved know and are aware of what they need to do. Once written in the contract, it helps in ensuring that the terms are met and provides a framework of consequences if either party fail to abide by the clauses. The following are some of the commonest contingency clauses present in real estate contracts. If you have any questions regarding them, discuss them with BC real estate lawyers to know what they mean.
Home sale contingency
The home sale contingency states that buyers need to sell their existing home before investing in another. That way, the buyers can back out of the contract without legal consequences if fail to sell the existing property. But will the seller wait for the buyer to sell their current home? The answer is, No. They will try to look for another buyer and a better deal. So, the home sale contingency supports the buyers and sellers at the same time.
The kick-out clause is an ideal way of safeguarding in places where the real estate market is hot. With the help of this clause, the seller may continue marketing their properties and on receiving an offer, they need to give a 72-hour notice to the buyer to call the deal off if the buyer cannot sell the present home. Unless you are in a slow market, make sure you discuss with a residential home purchase lawyer, whether to include the kick-out clause or not. Peter Borszcz from BC Real Estate Law is one of the renowned names dealing with real estate law and assists thousands of homeowners and realtors when buying and selling residential real estate.
Financing contingency clause
The financing contingency clause is also common and often mentioned in various real estate contracts and states that the offer is based on the buyer’s ability to obtain financing. The clause will also mention the type of mortgage you wish to get for financing and the timeframe within which you can apply for and get approval for the loan. It is a buyer-friendly clause and safeguards them in the event of failure to get a loan or if the financing option falls through.
The appraisal contingency is another good option for buyers and allows them to re-negotiate and eventually cancel the deal after the appraisal of the property and on realizing the appraised value of the house does not match the price the seller has set.
By now, you have a better understanding of how real estate agreements function and the significance of contingency clauses. All real estate contracts with contingency clauses are subject to conditions and only become legally viable when those conditions are met. If you have any questions regarding the contingency clause, you need to consult with a lawyer for home purchase to resolve them.