Four Most Common Contingencies

When an offer on a home has been accepted, there are often certain criteria or “contingencies” that must be met prior to the final sale of the property. Here are a few of the most common home contingencies you may encounter.

Inspection Contingency 

Fewer contingencies can make your offer more appealing, but the majority of buyers opt for home inspections. If the purchase is being financed, a moisture and pest inspection will also be required. These inspections allow the buyer to truly understand the condition of the home. The buyer can choose their home inspector and request repairs to be done. However, the seller does not have to accept all of the repair requests. It is often in the best interest of both parties to negotiate the terms of the inspection contingency. If the requests are not agreed upon, either party can walk away from the deal 

Appraisal Contingency

When obtaining a traditional loan, lenders typically require an appraisal to verify the value of the property. The contingency informs all parties that the Lender will not finance the loan above the appraised value. If the appraisal is below the asking price, then there are three options:

1. The Seller lowers the purchase price to match the appraised value. 
2. The Buyer makes up the difference in cash. 
3. The contract gets terminated and the EMD will get returned to the Buyer.

Financing Contingency 

Another example of a financial contingency would be a mortgage contingency (also called a financing contingency) to ensure that the buyer will be able to secure sufficient funds for the purchase. Buyers are expected to have a preapproval letter from a lender prior to submitting an offer on a home. During the sale process, however, things can change like a massive change to credit or employment which can jeopardize closing. Mortgage lenders and underwriters sometimes can help in these situations, but it’s best to avoid major purchases and job changes.

Home Sale Contingency 

This contingency states that they will buy the property contingent on the sale of their current home. Buyers like this contingency because it minimizes the risk of having two mortgages overlap. However, this is no longer a popular contingency due to the risk of the listed property being off the market, but not resulting in a sale. Sellers may opt to pass on offers with this contingency and wait for one without.