Home Purchases and Contingency Clauses
Contingencies are added to home purchase contracts for a number of purposes. In essence, a contingency clause protects either the seller or the buyer when a condition or action occurs. As your College Station real estate attorney will tell you, contingency clauses are binding and must be met before a home purchase can be completed.
In order for a contingency to become binding in a sales agreement, both the seller and purchaser must agree to its terms. It is important to be aware of what you are potentially getting into if you agree to such a clause, but understand that contingency clauses are standard in home sales agreements.
Types of Clauses
Generally speaking, a potential buyer begins the real estate transaction with an offer to purchase. The amount specified can be agreed upon by the seller, but more often than not the seller will counter the offer, and then the buyer may respond with another offer. This type of bargaining is something like what occurs in the purchase of an automobile. However, there is much more involved in a home purchase. Once a price is agreed upon, the buyer will usually offer what is termed “earnest money,” which is, in a sense, a deposit and is usually around 1% of the sales price. This money is placed into an escrow account.
Contingencies are then often added to the sales agreement. Some common contingency clauses are:
- Financing Contingency: If the purchasers have not yet obtained financing, they may add a financing contingency which provides them a specified amount of time to be financed. If the purchasers are not able to get the necessary financing by the termination date, the seller has the right to sell the house to another party. Often the earnest money is lost to the seller in such a case.
- House Sale Contingency: When a party is trying to sell one property and purchase another simultaneously, there can be problems. If the one home does not sell before the required date, the seller has the right to cancel the sales contract.
- Appraisal Contingency: This contingency is designed to protect the purchaser in case the property in question does not appraise at the minimum specified value. In such a case, the home purchase can be terminated and the earnest money returned to the buyers.
- Inspection Contingency: This is also referred to as a due diligence, and it protects the buyer in case certain repairs need to be made to make the home livable. A professional home inspector is hired to examine all aspects of the property, including wiring, plumbing, finish, ventilation, etc. The inspection contingency can be written in such a way that the seller is required to pay for repairs up to a certain amount, or it can deem that the purchase contract is null and void.
For Further Information and Answers to Questions
If you are purchasing a home, you may want to work with a College Station real estate attorney to make sure that all of your rights are protected. Call Peterson Law Group today at 979-703-7014 or 936-337-4681.