December 28, 2018
Contingency in the Real Estate Buying Process
Every real estate purchase is made with the involvement of a real estate contract, also known in residential real estate as a home purchase agreement. This document is an agreement between buyer and seller that indicates an offer has been made and accepted, and it includes a number of standard elements no matter where the home is found—including Rhode Island, Massachusetts, and Florida, markets in which we at Topouzis & Associates, P.C. ply our trade. Among these elements it is ordinary to find the terms of the sale, the amount of the earnest money deposit, the agreed-upon sale price, and other important provisions—including contingencies. Indeed, few real estate contracts are made without the addition of contingencies. Generally these contingencies are considered to be requested by the buyer, in a technical sense, though it is not irregular for some of these contingencies to be considered standard stock, and depending on the property’s location their inclusion may even be a legislative requirement.
Contingencies are conditions that must be met in the process of purchasing a home in order for the contract to remain valid and enforceable all the way through closing. Should a contingency fail to be met, the purchase agreement ceases to be binding and enforceable—providing both parties an out from the contract without either side being forced to pay restitution (including, in the buyer’s case, forfeit of their earnest money deposit).
Among the most common of contingencies to a purchase agreement:
- A regular focal point of contingency is the buyer’s ability to obtain a loan, the promise of which comes in the form of a mortgage commitment letter from a lender. There is no more common reason for the fall-through of a real estate transaction than a buyer’s inability to secure financing.
- Should a home inspection reveal major problems, like a severe crack in the structure’s foundation, a contingency in the contract may give the buyer an out.
- When a home appraisal is run on behalf of the buyer’s lender which reveals that the agreed purchase price is well above the market value of the home, and therefore that the lender will not be willing to meet that price in its funding, a contingency in the contract can offer the parties a chance to either cancel the purchase altogether or to renegotiate based on the appraised value.
- Sometimes a buyer can manage to get a seller to agree to a contingency that the buyer be able to sell their home before the real estate contract becomes binding. Naturally, sellers can be reluctant to enter into an agreement that includes this contingency—which means these are only common in the case of buyers’ markets, as this contingency’s inclusion in an offer made in a seller’s market can cause the offer to be rejected outright.
- In the case that some form of unresolvable defect in title is found in the title search made by Topouzis & Associates, P.C. or another title services company, a contingency requiring clear title may allowing for cancellation of the contract
However, we at Topouzis & Associates, P.C. are experts at ferreting-out problems with title and disposing with them in advance of closing. We take pride in the great amount and quality of experience we bring to the closing table in Rhode Island, Massachusetts, and Florida. Contact us if you want a partner in your property closing—one who makes everyone involved feel like family.