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| The Real Estate Encyclopedia |
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| How Do Contingencies Work? |
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| Category - Home Selling FAQ's - General Home Selling
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Contingencies in a contract cover specific areas the buyer wants to investigage, after all other terms of the agreement have been agreed to and the binding agreement date has been set. In other words, the buyer reserves the right to address certain issues, like the negotiation for the repair of any problems found through the inspection process, and the right to "walk" or terminate the contract if those contingencies are not satisfied by the seller.
The most common contingency in a real estate contract is the inspection contingency. The contract includes extensive wording to cover the right of the buyer to inspect the property and, if necessary, to negotiate with the seller any necessary repairs. The wording of the contingency may require a buyer to get his home inspection completed in fourteen days. It allows the buyer three days (or whatever is specified in the contract) to review the inspection and report any problems to the seller. If the buyer selects not to report problems or request repairs within the alloted time, that contingency automatically disappears or is forfeited and the Buyer is legally responsible to complete the purchase.
If the Inspection Report, on the other hand, does identify the need for repairs and the seller is not willing to perform them to the Buyer's satisfaction, the Buyer has the right to terminate the contract and receive a refund of the earnest money held in escrow.
Other contingencies often found in purchase contracts specify the home must appraise at a value equal or greater than the purchase price or even make the contract subject to the buyer selling and closing another property.
In summary, contingencies are a part of real estate contracts and so are renegotiations—but only in limited areas and according to the contract. Some buyers and sellers never fully read the contract—be sure to read yours.
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