What Are Some Common Contingencies In Real Estate Contracts?
Contingencies in real estate contracts are specific clauses that trigger or prevent certain events from occurring. They are often routinely added to ensure certain conditions are met before entering the contractual phase. Many of these contingencies are common, and sometimes even required to ensure a fair and balanced transaction occurs. In today's Boca Raton Real Estate blog, we're bringing several of the most universally observed contingencies in real estate contracts, and how they shape the nature of buying or selling a Boca Raton home.
A mortgage contingency is a way to protect home buyers from rejection by a financial institution. This contingency, also known as a loan contingency or financing contingency, allows buyers to cancel the contract without legal penalty or loss of deposit in the event they are unable to secure a mortgage. The loan contingency period is usually 30-60 days, and permits the buyer a grace period to search for a financial product that works for them. If unable to, both parties can walk without repercussion.
A home inspection contingency is pretty simple to define. The buyer requires a licensed professional to enter and inspect the home prior to entering contract. This of course, insulates the buyer from any hidden concerns that would lead them into a ruinous financial transaction, while giving both buyer and seller a clear picture of any concerns that may raise or reduce the home value.
Sale Of Prior Home
The Sale of Prior Home contingency states that a buyer must be able to sell their existing home to free up funds prior to the contract taking hold. This allows for a buyer to gracefully exit the contract in the event something unforeseen occurs with the listing and sale of their existing home. In most cases, there will not be an intermediate dwelling that buyers will occupy before moving into their next home. Some of the wealthiest buyers may enjoy a short-term seasonal rental while searching in town, but for most, throwing money at a temporary home is a waste, or something untenable altogether. This ensures that buyers are not left homeless between the sale of their home and the purchase of another, and allows for the successful liquidation of funds to use towards the new property.
Much like the home inspection contingency, the appraisal contingency places a protective barrier between the buyer and their contract, this time based on the appraisal. While the appraised value isn't the same as the market value, having a recent appraisal of the home is a major step in ensuring you are buying the home at its true value. The home inspection will determine any concerns that may need to be addressed prior to a final appraisal, while the appraisal will take these concerns into account to round out a final, reliable and recent number on the home.
Like most contingencies, they are relatively simple and self-explanatory. A Homeowners Insurance contingency requires the buyer to purchase and activate homeowners insurance prior to fulfilling their contract. Often required by the lender or seller, it allows either party to withdraw from the contract in the event the buyer cannot get the necessary coverage. This functions similarly to the loan contingency, in that both require the buyer to obtain a financial product to fulfill their role.
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