Anyone who’s considering purchasing a home should learn as much as they can about the process of making this purchase. Homes are costly investments, so one of the top priorities must be protecting your own interests if you’re embarking on this process.
In real estate, a contingency is a condition that must be met if the home purchase will move forward. The safety net it provides protects the buyer and seller by allowing both parties the opportunity to cancel or renegotiate the terms if certain things don’t go as planned.
Some of the more common types of contingencies in real estate purchase contracts include:
Home inspection contingency
You should always have a home inspection done if you’re purchasing a home. This must be done by a qualified professional. A home inspection contingency gives them the ability to walk away, negotiate repairs or request a credit if there are issues found during the inspection. The defects are typically significant, such as electrical problems, structural damage or mold.
Appraisal contingency
An appraisal contingency gives you protection against overpaying for a home. It also protects the lender from funding a loan that exceeds the property’s value. If the home doesn’t appraise for at least the purchase price, you may be able to terminate the contract or renegotiate the sale price.
Financing contingency
A financing contingency allows you to back out if you can’t secure the mortgage loan within a specific time. If finances fall through, you can cancel the contract without risking losing your deposit.
Contingencies are only one factor to consider when you’re looking into purchasing a home. It may behoove you to have someone on your side who can review the documents to ensure you fully understand them and agree with what they contain.