Real Estate and the Contingency Clause

Real Estate and the Contingency Clause

Slide1A contingency clause establishes an action or condition that must be met in order for a real estate contract to be binding, signed by both buyer and seller. In real estate, such transactions begin with an offer on behalf of the buyer for the purchase of a property from the seller. Sometimes, this offer is accepted. Sometimes, it is countered. Often, a contingency clause is attached to the offer, which can give either party the right to back out if circumstances are not met.
Examples of contingencies include things relating to timeframe, loan terms, interest terms, etc, but all must be understandable by both parties. Should one or more parties not adhere to the contingency, the contract is null and void. Assuming the conditions are meant, the contract is legally enforceable and violation would be a breach of contract. Each contract should establish consequences, though a lawsuit may be the eventual result.

There are multiple types of contingency clauses. An appraisal contingency is meant to protect the buyer by valuing property at a minimum amount. If the property is not appraised for this amount, the contract can be terminated. A financing or mortgage contingency allows the buyer time to obtain financing for purchase of a real estate property. This way, the buyer is protected if the financial institution will not provide financing. A house sale contingency gives a buyer a particular amount of time to sell their existing home in order to finance a new home. It protects the buyer in instances where the home doesn’t sell but can be damaging to the seller.

In an inspection or due diligence contingency, the buyer gains the right to have a home inspected within a set time period and then negotiate prices or repairs. This allows for a buyer to request repairs or concession, request time for inspection, back out of the deal, or move forward. A cost of repair contingency may also be added to this.

Finally, a kick out clause is often added by sellers to ensure protection against a house sale contingency in which the seller can continue to market a property.

Jason Hartman recommends educating yourself before making any investment deal—real estate contracts are, of course, no exception. Read and understand your contract, note all deadlines, respond quickly. Question your agent or attorney and protect yourself in the event of a deal, and enjoy your new income property!(

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The Young Wealth Team