What you need to know about contingencies.

Contingencies are legal clauses stating that certain requirements that must be met before the contract can go to settlement. Contingencies protect the buyer’s interest, and allow the buyer to terminate the contract and keep their earnest money (deposit given at the time of a ratified contract). We have broken down the different types of contingencies a seller might run across when selling their home.

Home sale contingency
• The buyer’s offer is contingent on them selling their home first. Basically the buyer is saying, “I’ll buy your property, but I need to sell mine first.” The risk is high for the seller in this situation because
• Seller’s don’t know when the buyer’s property will sell, it’s possible for the seller’s home to be tied up for weeks or months. Even worse, maybe the buyer’s sale is contingent on the sale by his or her purchaser. You are taking a risk by removing your home from the market to accommodate someone who may never be able to close the deal. Kick out addendums can be used to lower the risk, and seller’s can still market the property while the contract is in place.

Financing contingency
• The buyer’s offer is contingent on their lender approving their mortgage. This contingency is standard in the real estate world.
• Most buyers need to finance their home purchase, on average financing around 88% of the purchase. Nonetheless, a financing contingency entails risk since even pre-approved buyers may lose the loan if they lose a source of income, acquire debt, a sudden spike in rates, or your property not meeting the lender’s requirements .

Inspection contingency
• This is another common contingency it means the buyer’s offer is contingent on the home inspection report. Buyers use the findings as leverage to negotiate a better deal, asking the seller to handle the repairs or include repair credits in the sale to cover the costs. The buyer must order and review the inspection within a certain number of days, or waive it. If the seller refuses to the terms the buyer is requesting, the buyer can walk away with their earnest money.
• 95 % of your offers will contain a home inspection contingency and is usually the reason many contracts are terminated or delayed. We recommend that sellers, conduct their own home inspection before you list property. The small fee for a home inspection could save you in the long run.

Appraisal contingency
• This means the buyer’s offer is contingent on the home appraising for an equal or higher value than the offer amount. This is different than the financing contingency.

• The purchasers bank will hire a licensed appraiser to determine the value of the home, based on its overall condition, location and the sales of similar properties in your neighborhood. If their appraisal comes in low, both parties can walk away from a deal in a sellers’ market some sellers can ask the buyer to make up the difference between their offer amount and the loan in cash, however this is unlikely to happen since the buyer will end up with negative equity.

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