When purchasing a home, it is important to safeguard one’s interests. Contingency clauses serve as protections throughout the process. These clauses give buyers the flexibility to address potential issues and back out of a deal without significant financial repercussions.
Understanding the various types of contingency clauses empowers buyers to confidently navigate the home-buying process.
Financing contingency
A common contingency clause is the financing contingency. This contingency allows buyers to withdraw from a purchase contract if they fail to secure financing for the home. It protects buyers from having an obligation to purchase a property they cannot afford. It also gives them an opportunity to secure suitable financing terms before proceeding with the purchase.
Inspection contingency
An inspection contingency enables buyers to hire a professional inspector to evaluate the property’s condition. If the inspection uncovers major issues, such as structural defects or safety hazards, buyers have options. They can negotiate repairs with the seller, request a price reduction or withdraw from the contract without forfeiting their earnest money deposit.
Appraisal contingency
An appraisal contingency safeguards buyers by ensuring the property appraises for the agreed-upon purchase price. Buyers can renegotiate with the seller if the property appraises lower than the contract price. They can also request a price reduction or terminate the contract. This clause protects buyers from overpaying for a property. It also helps ensure that they are making a sound investment.
Home sale contingency
A home sale contingency provides protection for buyers who need to sell their current home before purchasing a new one. This clause allows buyers to back out of a contract if they fail to sell their existing home within a specified timeframe. It ensures that buyers do not end up owning two properties simultaneously and facing financial strain.
While these are some common contingency clauses buyers may rely on when purchasing a home, this is not an exhaustive summary of all contingencies that may come into play.