What Buyers Need To Know About Contingency Offers Within A Contract

28 January 2022

If you are about to make an offer on a home, a contingency offer can protect you in several ways. Read on and learn more about contingencies and what they mean.

What Is a Contingency Offer?

Along with an offer to buy a home at a certain price, your offer will probably also include contingencies. A contingency is a clause in the sales contract that allows buyers to get out of the contract if the contingencies are not met. Contingencies must be included in the initial offer because once the seller agrees to both the price and the contingencies, they become part of the legal contract to buy the home. Here are some common contingencies:

• Financing: Most buyers must obtain financing for the home, so this is a common contingency for those not paying cash for the home.
• Home inspection: Lenders often require an inspection of the home prior to approving the financing, and this can help uncover problems with the home that might not have been readily obvious at first glance. When big problems are found, buyers can renegotiate the sales price or the seller can agree to rectify the problem.
• Settlement: This contingency allows the buyer to sell and close on their current home before they close on a new home. If this type of continency is in place, the seller is often allowed to keep their home on the market and accept offers while the buyer tries to sell their home. This type of contingency can be annoying to the seller but may be necessary in some situations.
• Appraisals: Lenders also usually need to see the results of a professional appraisal before approving a mortgage. If the appraisal is too low, the buyer has a way out of the contract to buy. They can also renegotiate with the seller to lower the price.
• COVID-19: The pandemic has also affected contingencies with some buyers (and sellers) adding a provision for a job loss or illness related to the COVID-19 epidemic. 

In most cases, sellers should aim for fewer contingencies rather than more. Keep in mind that the seller could accept another buyer's offer, even for less money, if the contingencies are too much to deal with. Buyers unsure about how to balance protecting their interests with gaining acceptance of an offer should consult with a real estate agent about what is and what is not okay when it comes to contingencies. In extremely competitive markets, only the bare minimum of contingencies that are required by the lender should be used. To learn more about contingencies, make an appointment with a residential real estate company.