Disclosures and contingencies in sales contracts enable both parties to back out of a real estate deal if certain conditions are not met. Understanding how they work can help make the process easier and give you an opportunity to take a deep dive into the status and condition of a property.
What Does a Contingency Mean in Real Estate?
A contingency is a clause in a real estate purchase agreement that specifies a requirement or action that must be met to make the contract legally binding. Contingencies protect both parties’ interests. Before a real estate contract becomes binding, both the buyer and seller must agree to the terms of each contingency and sign the contract. It is critical to have an experienced real estate attorney draft or review a sales agreement, especially if you are new to buying or selling real estate. Some contingencies can be challenging to understand – your lawyer can explain them in terms that are easy to grasp and advise you on whether certain contingencies may or may not benefit you.
Many different types of contingency clauses may be added to a real estate contract. Some of the most common include:
Mortgage contingency – This clause outlines the period of time in which the buyer must find financing to purchase a property. If a loan is not secured by this deadline, either party can nix the deal without consequence and the seller can put the property back on the market.
Title contingency – This clause allows the purchaser to do a title search and object to the title status of the property. If there are any liens or issues with the title, the buyer can renege on the deal.
Home inspection contingency – This gives the buyer a window of time to get the property inspected by a professional. Foregoing an inspection contingency is not recommended by real estate contract lawyers, as the inspection helps reveal any serious issues such as faulty plumbing, structural problems, or a leaky roof. If the property does have defects and the seller chooses not to repair or remediate the problems, the buyer can terminate the contract.
Prior home sale contingency – This clause benefits buyers who need cash from the sale of an existing home to buy a new one. If they need to sell their home by the deadline specified in the contract but do not have a buyer, the contract can be terminated without penalty.
Appraisal contingency – This stipulation protects the buyer. If the property is not appraised for the sales price, the contract can be nullified. In most cases, the seller can drop the price to the appraised value if the buyer is still interested.
Insurance contingency – Often requested by the buyer or mortgage company, this contingency stipulates that the buyer must obtain homeowners insurance on the property. If they are unable to get insurance, either party can withdraw from the contract.
What is a Disclosure?
Most Pennsylvania real estate lawyers have clients who are selling property fill out a Seller’s Disclosure Form, which contains all the information about the home’s condition, defects, potential repairs, or any other issues that could affect the buyer’s decision.
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