Whether you’re buying or selling a house, it’s crucial to know what types of contingency clauses can be used and how they impact the sale. Generally speaking, the end goal is always the same: The deal can be called off if the contingency is not met. Below are a few examples.
Getting a Loan
The buyer often has to finalize the loan with the bank in order to buy the house. If the loan doesn’t go through, the buyer is released from the deal.
Failing an Inspection
The buyer also may be given a set amount of time — such as two weeks or a month — to have an official inspection done on the house. If there are issues, the buyer can legally walk away. Most buyers simply ask the seller to lower the price or repair the issues. The seller can refuse to do either, though, which is when buyers can decide if they want to go forward with the sale or pull the offer and look for another house.
Selling a Different House
If a buyer puts in an offer before he or she sells the previous house, this clause can offer protection by allowing the buyer to walk away from the deal if the other house doesn’t sell. Buyers like this because they don’t want to get stuck with two mortgage payments, which may not be affordable.
No matter which clauses are added to the contract, clarity is very important. Both sides need to understand all of the little details, things need to be written out very clearly and both must know what they’re agreeing to before they sign.
Source: Investopedia, “Contingency Clauses In Home Purchase Contracts,” Jean Folger, accessed Oct. 11, 2016