CONTINGENCY CLAUSES IN YOUR HOME PURCHASE

From time to time, it becomes necessary to insert contingency clauses in your home purchase contract.  A contingency clause defines a condition or action that must be met for a real estate contract to become binding to which both buyer and seller must agree. 

Types of Contingency Clauses

It is important to note that contingency clauses can be written for any need or concern on the part of the seller or buyer.  Below are the most common contingency clauses in home purchases.

1. Appraisal Contingency - This clause protects the buyer and is used to ensure a property is valued minimum, specified amount.  Should the property not appraise for at least the specified minimum amount, the contract can be terminated.

2. Financing Contingency - A financing contingency gives the buyer the time to apply for and obtain the necessary financing for the purchase.  It is important protection for the buyer in the event they are unable to secure financing and can enable the buyer to reclaim their earnest money.

3. Home Sale Contingency - This clause enables the buyer a specified amount of time to sell or settle their existing home to finance the new one.  This protects the buyer in the event the existing home does not sell. The seller retains the right to cancel the contract is the buyer's home fails to sell.

4.Inspection Contingency - Also called a due diligence clause, it gives the buyer the right to have the home inspected within a specified period.  It protects the buyer by allowing him to either cancel the contract or negotiate repairs based in the findings of the professional home inspector.  

5. Kick-Out Clause - The kick-out clause  protects for the seller who has agreed to a home sale contingency.  This clause allows the seller to continue to market the property.  Should another buyer step up, the seller can give the current buyer a specified amount of time to remove the house from contingency.  Otherwise, the seller can back out of the contract and sell to the new buyer.

As a buyer or seller, it is important to work with either a real estate professional or a lawyer to follow the laws of your state.  It is also important that when contingency clauses are attached to a real estate contract to read and understand your contract and pay attention to all the specified dates and deadlines.