Whether you are buying or selling a home, it’s important to understand each contingency clause in the contract. Buying a home is a big commitment, and it is important that you do everything possible to protect yourself when making this investment.

Contingency clauses are one way that buyers can build additional protections into the sales contract. They allow a buyer to cancel a sales contract with no penalty or loss of earnest money if certain conditions are not met prior to closing.

Contingencies clauses can alter the terms of a contract significantly, so don’t forget to read each contingency carefully. Here are the five common contingency clauses you may find in a real estate sales contract.

Attorney View Contingency

In the Chicago metro area, contracts are typically subject to a five-day period where attorneys for both the buyer and the seller can review and suggest modifications to the legal aspects of the contract.  Modifications to critical components of the agreed terms, such as the price to be paid, are not included in the scope of the attorney view.

Appraisal Contingency

If a home does not appraise at or above the sale price, the prospective lender will generally not proceed with the loan unless the buyer raises their down payment to make the numbers comply with lender expectations. An appraisal contingency often permits the buyer to back out of the contract with no penalty if the house does not appraise at or above the sale price. Alternately, the appraisal contingency can state that if the appraisal is below the sale price, the seller has the option to lower the sale price of the home to the appraised price. Terms of the appraisal contingency and what is acceptable to the parties is typically negotiated to arrive at mutually acceptable result.

Mortgage Contingency

The mortgage or financing contingency specifies that the buyer has the right to back out of the contract with no penalty if he or she is unable to obtain financing as specified in the contract.  These terms often include the date the buyer must secure financing, the amount of the loan, and the type and the interest rate of the loan.

Home Sale or Home Close Contingency

This contingency allows a buyer to back out of a contract with no penalty if he or she cannot sell and/or close on their current home before a set date. This prevents buyers from potentially owning two homes at the same time with the obligation to pay two mortgages simultaneously.  Sellers are much less likely to accept these conditions unless there is an abundance of inventory with longer market times when this highly competitive environment is characterized as a buyers’ markets rather than sellers’.

Inspection Contingency

The inspection contingency allows the buyer to perform many inspections as deemed necessary during a set period of time.  In the Chicago metro area, this is typically five business days. If the property does not pass inspection and major issues are revealed, the buyer has several options which include cancelling the contract without penalty.  More frequently, sellers and buyers resolve the concerns revealed in an inspection by sellers performing repairs or crediting buyers for the defects to allow them to address those post-closing.

Contingency clauses in a contract should not be glossed over amidst the legalese and boilerplate language. Doing so could be a costly mistake.  For additional information, please feel free to contact me today for a consultation.  I will be happy to answer any questions you may have about selling your home or finding your next home..

 

 

Allyson Hoffman, ABR, ACRE, CDPE, CRS, e-PRO, GRI, SFR, SRES
RE/MAX Villager
Serving Chicago's North Shore, North and Northwest Suburbs
847-310-5300
allyson@allyson.com

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Allyson Hoffman is your ultimate real estate resource for Chicago's North Shore, North and Northwest Suburbs and surrounding areas. Visit my website for detailed information regarding today’s real estate markets. 
 

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