How to Negotiate Contract Contingencies

What is a contingency first and foremost? A contingency is really a ‘condition’ so to speak in which is made part of a real estate contract such as the purchase of a home is based solely on the premise that the buyers primary home sells, or that the purchase is based upon the homes appraisal, home inspection, or ability of the buyer to obtain mortgage financing or down payment.

In real estate contracts, contingencies are not uncommon in the least as some can be major setbacks for the seller or the buyer or just minor ones. The many common contingencies above are pretty much normal. Let’s say that a buyer submits an offer to purchase contingent upon whether or not their existing home sells, in addition there is a backup offer from another buyer that has no contingencies in the offer they submit. More often than not, the seller will accept the backup offer if the waiting period of the first offer exceeds what is stated in the first contract. Another scenario is that a buyer may present an offer to a seller in which there is a contingency in the contract but there is a stipulation in the contract that the home must appraise for at least the purchase price, and if not, the offer is withdrawn.

Or, if the seller receives an offer to purchase with a contingency that the buyer must be approved for mortgage financing and then they are not, well the seller already is fully aware of this condition and can then proceed to accept additional offers from buyers who are ready, willing, and able. There could also be a contingency in a contract that the purchase of the home will be based on the outcome of a satisfactory home inspection. Upon the results of the home inspection, the seller’s response to it could be that they will repair or replace issues in which arise, or maybe they choose not to. Or perhaps the contingency is based on the fact that the home inspection must be done within a certain time frame, such as seven to fourteen days, and it not completed during that time, then the offer to purchase becomes null and void after the normal three day period in which the buyer has the right to review the inspection and report to the seller any derogatory issues that arise.

Issues could include things like the home looks absolutely perfect and pristine but after the inspection it shows termite infestation which is reported to the seller who opts to not treat the home, resulting in the buyer withdrawing the offer with no repercussion legally. If the seller chooses to treat the home, then both buyer and seller negotiate how that will be handled within the real estate transaction or with a credit for treatment at closing. Or, the roof may look perfectly fine from the curb, but the home inspection reveals that there are roof tiles missing, and water leaking in the attic due to the missing tiles. The seller again has the choice of either making the necessary repairs prior to closing, or the buyer can be credited by the seller at closing the amount needed to repair or replace the roof. Additionally, there are instances where the inspection comes out clean with minor repairs that need to be made, which then the buyer and seller can negotiate how these repairs will be made, which must be included as part of the real estate contract again whether or not they be done prior to closing or as a credit at closing.

Again, contingencies are usual suspects in real estate transactions and can be looked upon as the tennis match of negotiation between both the seller and the buyer. Contingencies are nothing to be nervous of or leery of in the least, however if questions arise by either party they must be addressed and handled most importantly licensed real estate professionals, who work diligently and ethically on the behalf of the parties they represent. As a seller or a buyer of real estate always be sure to thoroughly review each and every line of the offer to purchase and contract which can prevent any future issues or misunderstandings that may arise.

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