Satisfying contract contingencies
Home buying contingencies are contractual requirements stating specific conditions upon which the closing of the purchase is dependent. Because a home is an expensive and complex structure, it is often difficult or costly to address all issues prior to agreeing to the terms of a purchase or sale. The practice of real estate utilizes contingencies to describe the needs of buyers and sellers. These statements encourage accurate and clear communications during the transaction necessary to reach a final agreement. Although you should be able to depend on the expertise of your agent, it is critical you understand the importance of contingencies, the purpose of them and how agents draft them.
Why Are Contingencies Necessary?
These requirements usually can’t be confirmed during the negotiation process due to time and cost constraints involved in satisfying issues like financing, inspections, and appraisals. If certain requirements are miscommunicated, or not included in the offer but are necessary to either party, problems are likely to occur. Both buyer and seller require certain conditions be satisfied before title can be transferred. The purpose of contingencies is to allow the parties to accept a conditional agreement prior to incurring the time and cost required to verify representations, investigate pertinent details or complete critical actions. Contingencies must be communicated clearly and reviewed carefully to verify your conditions are understood.
As mentioned previously, it is the task of your real estate agent to draft concise contingent statements for each particular transaction. In certain states, the state provides pre-approved contingency forms tailored to specific issues that are fill-in-the-blank documents. Each party must carefully read each statement to confirm it correctly conveys your thoughts and wishes. Here are some basic guidelines to follow when evaluating a real estate contingency:
- It should be specific to avoid misinterpretation.
- It should be as reasonable as possible so as not to put either party in a situation that has no hope of being resolved.
- It should include time limits and cannot be open-ended.
- It should include definitions whenever applicable and always utilize clear language.
- It should include the “Five W’s”. Who, what, why, when and where and which party is responsible if there is a cost.
When the contingency is well-drafted, many misunderstandings are prevented. Contingent statements are an excellent way to communicate concerns and are submitted in good faith to facilitate your housing goals.
Here is a partial list of some of the common contingencies below. Your transaction may or may not require them, or may require others not listed. These are issues addressed by contingencies; they are not the actual wording of the contingent statement. You should become familiar with these and any other considerations unique to your particular situation. An offer to purchase could be subject to:
- Obtaining financing
- Well and septic inspection
- Home inspection
- The sale of buyers home
- Survey of the property boundaries
- Repairs to be made by the seller
- A primary offer
- Energy inspection or improvements
- Code compliance inspection
- Joint driveway or well agreement
- Radon test
- Buyer pre-closing walk-thru inspection
- Urea formaldehyde foam disclosure
- Perk test
- Repairs or improvements before closing
- Safe water test
- Successful closing of another real estate transaction
- Zoning changes
We recommend that you learn which contingencies may apply to your specific transaction. It will be helpful to familiarize yourself with what a contingency is, its purpose and how draft an effective statement. You will find that contingencies will be a valuable tool during your sale. Contemplate the obstacles you have to deal with ahead of time, instead of waiting until you are in the heat of a negotiation. As an example, if you will need a mortgage, seek a pre-approval from a lender before you begin to look and review the standard contingency when you review the “offer to purchase” form.