Sunday, August 06, 2006

Contract Contingencies

A contract contingency is used in most transactions - most often in a buyers market. The homebuyer will make an offer on the house that includes conditional circumstances that expire in a set timeframe. Basically, if a contingency is in the mutually agreed contract the seller and the buyer both must be satisfied before they have a legal duty to execute the terms of the deal.

There are many types of contingencies of not completely foreseen circumstances but all have a date to "lift" or "remove" the contingency in question.

Loan Financing Contingency: The homebuyer usually needs to get a loan to purchase the real estate for sale. When the buyer applies for the loan they have a negotiated timeframe to obtain the financing from the start of the accepted contract. The statement in the contact would look something like, "Buyer shall have ____ days from acceptance of contract within which to remove or otherwise act on said contingency. Buyer agrees to verify all loan terms directly with lender prior to removing this contingency." If the buyer is turned down for the financing within the negotiated timeframe then the contract expires.

Note: If your selling a home its best to have the homebuyer submit the initial offer with a "Pre-Approval" letter from the lender.

Note: The homebuyer does have the option to submit an offer to the seller with no contingencies but it is done mostly in a hot sellers market.

A few more samples of contingencies are as follows:

Structural Pest and Termite Inspection Contingency
Property Condition - Home Inspection Contingency
Home Insurance Contingency

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