If you have previously purchased or sold a piece of real estate you more than likely know of contract contingencies. A contingency is a specific requirement that needs to be met in order for the contract to be official and the sale of the property to be finalized. Most often buyers or sellers include contingencies for their own interest and protection in the transaction.
Contingencies are added in or included in standard real estate contracts to help ensure that certain conditions are met before final paperwork is signed. Since the beginning of the pandemic, it was not uncommon for many buyers to waive typical protection contingencies and sellers to include new ones not often heard of.
What to be aware of if You are a Buyer
Requesting a contingency as a buyer helps to give you an escape route from your offer on the property. Every contingency creates an additional hoop that needs to be jumped through or an item that needs to be met before the actual official sale can close. Most often on a buyer’s part contingencies include appraisals and inspections.
With the high competition amongst buyers, it was not uncommon to see many drop the standard traditional contingency for an inspection which holds a home seller to making certain repairs or being willing to negotiate a different price over any significant issues that are found after a professional inspection is conducted on the property. Those who chose the strategy of waiving this contingency do so in hopes of telling the seller they will not be expecting them to make good on any repair issues the home has and help the closing process go much quicker.
One thing to be aware of when you choose to waive an inspection contingency in hopes of making your offer more competitive with several offers on the table is that this does not mean you do not get to have an inspection at all. You can waive the contingency and still pay for an inspection, but you will not have the ability to back out on your offer for any repairs other than ones that make the home completely unlivable.
What to be aware of as a Seller
Right now, during a hot seller’s market, a homeowner has much more leverage to include contingencies in a real estate contract. Adding in contingencies can allow for more time to close on your home if you are struggling to find your next home purchase. One thing to be aware of though is even with a higher amount of leverage adding too many contingencies to the contract could cause buyers to walk away. Even when you have several ready to make an offer.
The bottom line when it comes to real estate contracts for both buyers and sellers is to make sure that you are going over them carefully. You want to make sure that you are not requesting too many contingencies that would make the other party back out of the deal. You also want to make sure that you pay plenty of attention to all of the contingencies in the contract making sure you know exactly what is being requested. A trusted real estate agent can help to walk you through every contract and best advise you on whether to accept or counter offer.