When buyer and seller have agreed upon a price to purchase a property, and the financing is in place, the deal is done, right? Not quite! Rarely would a buyer and seller agree to a contract without certain contingency clauses, and for good reason.
Contingency clauses offer protections for buyer and/or seller against situations or occurrences that would make the transfer of ownership problematic.
Contingency clauses included within the purchase agreement, for example, specify the conditions under which either buyer or seller could cancel the sale, with or without penalties, depending on the specific contingency terms.
Among the contingency clauses that can be included in a contract are:
- Home Inspection: The seller could be required to correct any problems found during the inspection prior to finalization of the sale.
- Termite Inspection: The contingency clause should specify who will pay for this service, or will the cost be split between buyer and seller?
- Roof Inspection: Although this inspection is typically handled by a home inspector, most inspections are cursory due to the inspector not wanting to walk on the roof. This inspection is best handled by a roofing contractor.
- Radon, Mold and Asbestos Inspections: Best handled by specialists.
- Early Occupancy: This contingency allows the buyer to occupy the property prior to escrow upon the seller’s prior approval of this contract clause.
- Preliminary Title Search: This clause requires the seller to provide clean title to the property.
- Contingency to Sell Existing Home: Not all sellers will agree to this clause. If this clause is agreed to by the seller, the buyer will be given a certain number of days to finalize the sale of his residence.
- Appraisal Contingency: Buyer could cancel the contract or renegotiate terms of purchase in the event of a low appraisal.
- Some contingencies can be waived and others added during the negotiations between buyer and seller; it all depends on various circumstances that may or may not affect either or both parties to the contract.
- Dependent upon contract terms, either party could cancel the sale upon violation of any contingency.
- Violation of a contract contingency by the seller could allow the buyer to walk away from the sale without penalty, and require the seller to return the buyer’s earnest money deposit in full.
- Violation of a contingency clause by the buyer could allow the seller to cancel the sale and legally retain the buyer’s earnest money deposit.
Contract contingencies keep everyone honest. The buyer is assured that everything specified in the sales contract will be strictly adhered to by the seller or the buyer can legally walk away without penalty and receive a refund of deposit monies.
Some contingencies favor the seller, such as sale subject to buyer’s obtaining funding or selling a current residence within a limited time period.
Contingencies are an important addition to any property sales contract due to the fact that the sole purpose of these additions is to eliminate risk. How can anyone disagree with that?