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Understanding Contingencies | Brian Chase - Atlas Law

Real estate contracts usually include provisions called “contingencies.” Never heard this word before? Not to worry! Today’s blog post breaks down what contingencies are and how they work when it comes to real estate.

Contingencies are essentially provisions included in a contract that will make the whole thing null and void if certain events do or do not occur. In essence, they note that “I will fulfill my side of this agreement, contingent upon x, y, or z.” You could also think of contingencies as conditions of your contract and sometimes they’re even referred to conversationally as conditions. Buyers and sellers are each able to propose contingencies as a way to protect themselves. Contingencies can also be bargaining chips. Let’s look at some of the most common examples of contingencies found in real estate contracts.

Contingency Regarding Selling Another Property: Perhaps the buyer only wants to and is able to buy a new house if they’re able to sell they’re old house. If, for instance, their old home is under contract, they can propose a contingency that their participation in the contract for the new house is contingent upon the sale of their old house going through. If you’re thinking this doesn’t sound very appealing to the seller, you’re right! The seller does not have to accept the contingency. Whether they do will likely depend on how confident they are in their ability to get another option. They could also potentially say, “Yes, I’ll accept this contingency, but only in exchange for increasing the price by so-and-so amount.”

Contingency Regarding Appraisal or Inspection: Buyers who want to make sure the value of the property they’re buying is consistent with what they’ve been told or their personal assessment may request contingency based upon a professional appraisal. You can also request contingency based on inspection to make sure there aren’t any flaws that need to be fixed for a high price. This gives you room to negotiate for a lower price or even back out altogether if you learn the property is worth less than expected. 

Contingency Regarding Mortgage Approval: Oftentimes, real estate contracts include a contingency for approval of the buyer’s mortgage. These can be quite specific, and may clarify that the terms of the mortgage approved must be the same as the terms stated in the contract.

When it comes to contingencies, these examples really only represent the tip of the iceberg. Still, we hope it gives you some clarity on what these provisions are and how you might be able to utilize them in your real estate contact. As always, if you have questions about this or any other matter related to real estate law, the Atlas Law team is here to help. Contact us today!