Contingency

Contingency in real estate is a provision in a purchase agreement that specifies an action or requirement that must be satisfied for the contract to become legally enforceable. Before the contract becomes binding, both the buyer and seller must agree on the terms of each contingency and sign it.

All types of contingencies

• Mortgage contingency: This condition specifies the time range during which the buyer must get finance in order to buy the residence. If the buyer cannot obtain finance by that date, they may withdraw from the sale without penalty, and the seller may relist their home and choose another bidder.
• Title contingency: A language in the contract that assures the buyer can back out of the deal if the title search raises questions about ownership of the property.
• Home inspection contingency: This allows the buyer to have the home examined within a certain time frame. The potential house buyer might negotiate repairs or terminate the contract based on the findings of the home inspection.
• A house sale contingency: gives buyers the time they need to sell their current home and close on a new one. Buyers can avoid owning two homes and having two mortgages while their own home is on the market.

Appraisal contingency

An appraisal contingency protects the buyer by requiring that the property appraises for at least the agreed-upon sales price, otherwise the contract will be void. This is due to banks’ aversion to giving money to borrowers for homes that are more expensive than they are worth. This condition may also provide that the seller may reduce the price to the assessed value.

Contingency for homes insurance: This condition forces the buyer to apply for and get homeowners insurance on the property. If any party is unable to secure the necessary insurance, the contract may be terminated. This is typically sought by the seller or the mortgage lender.

Example of Contingency

A financial downturn, a natural calamity, fraudulent conduct, a terrorist strike, or a pandemic Businesses were devastated by the coronavirus epidemic in 2020, causing many workers to work remotely.