A contingency is a condition that must be met in order to complete the sale of a home.
To buyers, contingencies provide security that will allow them to cancel the contract and collect their deposit if certain conditions are not met. This could include the physical condition of a property, the ability to get an appraisal and financing, review HOA docs and more.
For sellers, however, contingencies present risks that the buyers could cancel or attempt to renegotiate terms of the contract. If contingencies are not met, the contract could be canceled. However, buyers must have a good faith reason for canceling. There are no unrestricted escape clauses in the contract.
Contingencies are often waived by buyers in competitive seller’s markets, but they remain an important consideration in every purchase offer. The East Bay continues to be in a strong seller’s market, which has encouraged buyers to include few if any contingencies in their offers. In fact, in 2021, Red Oak has found that only 10% of transactions have any contingency whatsoever.
In the event that you waive your contingencies but then discover a defect in the house, and decide to cancel the purchase, you could risk losing your initial deposit.
These are typical contingencies, which may or may not be included in your contract:
Property Conditions
- Physical condition of property
- Review of reports and disclosures from seller
- Review of HOA documents (if there are any)
- Determination that the property is insurable
- Review and acceptance of the preliminary title report
Appraisal
In order to clear an appraisal contingency, a licensed real estate appraiser, hired by the lender, needs to find that the fair market value is at least equal to the purchase price.
Financing
Even though you are pre-approved, the financing contingency requires that the entire loan package is approved by the lender’s underwriting department.
Are you thinking of buying a home or want to learn more about contingencies and the buying process? Reach out to us or one of our experienced local agents, we’ll be more than happy to help.
