What Everyone Ought to Know About Real Estate Contingencies
Posted on: October 16, 2007
Webster’s Collegiate Dictionary describes “contingent” as dependent or conditional. To make matters simple, a contingency in a real estate contract is anything upon which the transaction is dependent or conditioned.
For those of us in real estate, contingencies are an everyday occurrence. They are either in the body of the purchase agreement, such as the financing contingency, or they can be added to address a specific concern, often as a result of an inspection or appraisal.
Most contingencies act as safeguards to protect the rights and concerns of buyers and sellers. If the closing is dependent upon the buyer receiving a loan, the financing contingency makes the offer subject to the receipt of said loan. The title contingency makes closing subject to a clear title. Any inspections requested would also be contingencies. Often, the buyers are made aware of a defect as a result of an inspection and will remove the inspection contingency conditioned upon the seller rectifying the defect. This effectively removes one contingency and replaces it with another.
Contingencies should be clearly defined in writing. There are plenty of forms which provide the language for traditional contingencies. Barring this, it has been my experience that plain, or conversational, language is the best remedy when addressing a concern. The contingency clause should explain the conditions upon which it may be removed, who may remove it, who pays if a cost is involved, and what will happen if the contingency is not removed by a specific date.
Some contingencies are self-expiring. In this instance, if a party to the transaction takes no action, the contingency expires and the right is forfeited. Buyers and sellers must take care not to let time slip by unintentionally lest it cost them an important protection.
When properly employed, contingencies give peace of mind to buyers who are leery about jeopardizing their earnest money deposits. They can also protect sellers who do not want to tie up their properties longer than necessary. As long contingencies are reasonable and clearly defined, they delineate the concerns of the consuming public and help move the transaction to a successful closing.
Article written by Don McCredie, G.R.I., CRS; he is the owner of PortlandRealEstate.com, a Life Member of the Million Dollar Club, and a past REALTOR of the Year for the Portland Metropolitan Association of REALTORS. Currently, he serves as the Broker/Owner of EXIT Acclaim Realty and can be reached at 1-800-203-9898.