Most real estate contracts have contingencies that will allow the buyer (or sometimes the seller) to terminate the agreement if the house appraisal falls short of the purchase price or if the home requires repairs that cannot be agreed upon.
These contingencies are conditions that must be met to close the real estate deal. Contingencies can be negotiated. In many cases, the price can be adjusted and the repairs can be agreed upon. But if sellers and buyers cannot reach agreement, the contract might become null and void.
The most common types of contingencies include:
• Property sales contingency – where the purchaser must sell his or her current home before closing the transaction on the home they are buying.
• Mortgage contingency – which allows the buyer a refund of the earnest money deposit if the lender does not commit to the mortgage (this can happen if the buyer is not fully approved).
• Inspection contingency – which allows the buyer to inspect the property to ensure that there are no major defects, items that require repair, or systems that need to be certified in good working condition.
Inspection contingencies are sometimes more difficult to negotiate, as they can be both objective and subjective. For example, if the air-conditioning system is 10 years old but still working fine, the buyer might want the system to be inspected by a licensed HVAC specialist. Based upon that inspection, the buyer might request that repairs be made or that a new system be installed.
Other types of contingencies for the buyer include:
• Approval of property lines and lot size according to a survey
• Property appraisal comes in less than the contract price
• Review and acceptance of restrictive covenants or deed restrictions
• Review of any leases between the current owner and tenants
• Buyer has to sell another property to complete the purchase
• Verification that there are no environmental or mold problems
If a buyer has too many contingencies, the seller may demand an escape clause, allowing them to continue marketing the property and accept another offer.
In today’s hot market, the seller might request a flexible closing date or a leaseback agreement that would give them sufficient time to find a place to buy or rent.
Larry Stoller is a broker and Realtor with Real Estate Five of the Lowcountry. Larry@RealEstateFive.com, RealEstateFive.com, SunCityOpenHouses247.com