There are many different types of contingencies that are in place to take the uncertainty out of a home purchase. These contingencies (a.k.a. conditions) must be met before a contract is legally binding. For instance, mortgage contingencies protect buyers in the case that they are unable to secure a specific loan as stated in the contract. If they cannot get the right kind of loan, they can back out and get their earnest money deposit back. Mortgage contingencies also protect sellers. When a buyer can’t get a loan and doesn’t tell the seller by a certain date, the buyer is still obligated to but the home with or without financing. The contingency permits the seller to find a mortgage for the buyer.
Other types of contingencies include the following:
- Appraisal contingencies – the buyers may back out if they cannot get an appraisal at least as high as the seller’s asking price; the sellers may refuse and back out if the buyers ask for a lower selling price (due to the lower appraisal).
- Inspection contingencies – the buyers have a certain amount of time to perform inspections of any kind to confirm their interest in the home. If they find a problem, they may back out of the deal.
If you take one thing from this post, remember that the wording of a contingency is the most important! Be sure to pay attention to the fine print!