Contingency clauses are certain stipulations that can be added to a real estate purchase contract. The contingencies have to be met in order for the contract to be legally binding. These are often added when a buyer is putting in an offer to purchase a home.
That said, buyers can choose to waive contingencies or skip them entirely. It’s important to know how beneficial they are and what ones may be used when determining how to proceed.
A home inspection
First and foremost, the vast majority – about 80%, according to some reports – of purchase contracts have home inspection contingencies. This protects the buyer because they get to have an official inspector examine the house first and determine if there are any known issues with it. The buyer knows exactly what they are purchasing for their money.
Another example is that buyers will sometimes say that they are making an offer, but they only have to abide by it if they can get a mortgage loan. They know they don’t have the money on hand to buy the house with cash. They need to make sure that they only have to purchase that home if the lender will give them a loan.
Selling the home
Finally, many buyers will already own a home as they attempt to upgrade or move to a different location. They may use a clause stating that they are only bound to make that purchase if they are able to sell their own house. This protects them from owning two homes with mortgage payments on both.
These are certainly not all the contingencies that can be used. But these examples do help to show how useful they are and why everyone needs to know what options they have.