Contingencies in Sales contracts

If you are buying a home, it is important to understand where and how contingencies come into play in a sales contract.

In short, every sales contract will include its share of contingency clauses. Some of these clauses are designed to protect the buyer, while others are designed to protect the seller. Either way, it is important that you understand the ins and outs of sales contracts and contingencies when buying a home. Below are several key factors to consider when reviewing contractual contingencies.

  • Before you ever sign the sales contract you should understand each and every line of the contract. If there is something you don’t understand, ask! A home will likely be the largest purchase you will ever make, so take the time to thoroughly read the contract and understand everything that is contained within it.
  • Contingencies may be better explained as “loopholes” or “allowances.” Many contingencies allow either the buyer or the seller to back out of the deal under certain conditions.  For example, there may be a contingency in the contract that allows the buyer to back out of the deal, without consequence, if the home’s inspection reveals details about the house that are unacceptable to the buyer.
  • Contingencies often protect your “good faith” or “earnest” deposit. Without contingencies, the buyer will likely be unable to back out of a real estate deal gone bad without losing their good faith money.
  • It is important to understand that all contingencies should either be met or agreed to be removed in writing for the sales contract to be valid. It is because of this that it is incredibly important to read and understand the details of your sales contract.

In general, contingencies are designed to protect the buyer from the defects of a property. Most of the protection afforded to buyers in a contingency clause involves the results of the property inspection. Because the property inspection takes place after the sales contract has been signed by both parties, it is important, as the buyer, to be able to back out of the deal if there are surprises found during the home inspection. Other contingencies in the sales contract will usually protect the buyer following the appraisal, the termite or pest inspection, the roof inspection, or the sale of the buyer’s home.