What are contingencies in real estate?
When you sell your house, you’re likely going to deal with contingencies. According to data from the National Association of Realtors® (NAR), about 80% of real estate contracts will have contingencies. In real estate transactions, a contingency is a clause contained in a purchase agreement that determines the action or requirement that must be met for the contract to become legally binding. A purchase agreement is the legal document that is used to transfer a property from seller to buyer. Contingencies in real estate can cause delays and sometimes make or break your home sale. Let’s discuss how they work, which contingencies are the most common, and how you can deal with contingencies in real estate as you sell your house.
How do contingencies work?
It’s important to understand how and when contingencies in real estate are established. When a buyer presents a purchase offer to a seller, it will often include the buyer’s terms and contingencies. When the seller receives the offer, they will have the opportunity to accept, reject, or counter the buyer’s offer. During this time, both parties will enter into negotiations in order to determine the terms and conditions, including contingencies.
What are the most common contingencies in home-selling contracts?
The most common buyer contingencies in real estate contracts include:
- Inspection contingency: Home inspection contingencies will allow the buyer to rescind their offer if the inspection uncovers a serious problem that was not previously disclosed. When you have an inspection contingency in place, it’s crucial to provide a seller’s disclosure. Within the inspection contingency clause, the buyer can have repair contingencies and hazard contingencies. Repair contingencies protect the buyer from unexpected repairs post-purchase, up to a specified dollar amount. On the other hand, hazard contingencies protect the buyer upon discovery of hazardous conditions including radon, lead paint, or pests. According to the NAR, 79% of real estate contracts include an inspection contingency.
- Appraisal contingency: With appraisal contingencies, the buyer can back out of a deal if the home appraisal value is less than the selling price. A low home appraisal can establish precedent for the lender to deny a buyer’s loan. 82% of real estate contracts include an appraisal contingency, and they are the most common source of delays and terminations in a real estate transaction, according to the NAR.
- Financing contingency: Also known as a mortgage contingency, a financing contingency lets the buyer exit the deal if they can’t secure proper financing for their home purchase. More often than not, traditional buyers will take out a loan to buy a house, so this contingency is important for the buyer to include. 76% of real estate contracts include a financing contingency.
Are there contingencies in real estate that protect the seller?
While there are contingencies to protect the buyer, there are also contingencies to protect the seller, including:
- Home of choice contingency: A home of choice contingency will allow the seller to back out of the transaction if they can’t secure the purchase of their next home. A timeframe is outlined in the clause, which could be anywhere from a few weeks to a few months.
- Rent-back contingency: Usually, sellers have a period of 7–10 days in which they will need to leave a property after it’s been sold. In a rent-back contingency, also known as a lease-back contingency, a seller can stay in the house they sell for a period of up to 60 days, on average.
- Kick-out clause: This condition is often included when a buyer puts a home sale contingency in place. A home sale contingency is a buyer contingency that makes a home sale dependent upon the sale of the buyer’s house. A kick-out clause allows the seller to continue showing their house to other potential buyers while the interested buyer in question searches for a new house. If a better offer comes along, the seller needs to inform the buyer with a notice to perform to remove the contingency or leave the deal.
Can you negotiate contingencies while you sell your house?
Luckily, contingencies are not set in stone. They can be waived, and they can be negotiated. In fact, more buyers are willing to waive their contingencies than in the recent past. According to data collected by the NAR, 24% of buyers were willing to waive the home inspection contingency, up from 20% in 2022, and 21% of buyers were willing to waive the home appraisal contingency, which is up from 18% the previous year. On top of that, if you have evidence that the buyer has breached a clause in the contract, misrepresented themselves during the sale, or committed fraud, you are able to void the sale and take legal action to collect any potential damages.
How can you protect yourself from contingencies in a home sale?
With every 4 out of 5 buyers likely asking for contingencies in their purchase agreements, contingencies can be expected when you sell your house on the traditional real estate market. If you would like to avoid contingencies altogether, you may want to consider selling your house directly to an off-market home buyer like HomeVestors®.
Sell your house without contingencies.
When you sell your house to HomeVestors, you don’t need to worry about dealing with contingencies. That’s because we buy houses “as is.” We’re off-market home buyers who have helped over 150,000 homeowners across the continental United States get a simple home sale. With our 3-step process, it’s easier than ever to sell your house the way you want. We offer a personable experience that focuses on you and your expectations for your home sale.
- No confusion: We believe your home sale should have a personal touch, and that’s why we do our initial consultation face-to-face. One of our property buyers will visit you to assess your property and answer any questions you have about us and our process. We’re here to walk you through your home sale, without all the back-and-forth. Selling your house shouldn’t be confusing—and it doesn’t have to be.
- No conditions: When you work with HomeVestors, you won’t deal with lengthy negotiations or buyer expectations. Since we buy houses in many different situations, we don’t shy away from houses that are hard to sell, and our offers don’t come with conditions. We buy houses “as is.”
- No contingencies: We never ask for contingencies because we don’t need them. We aren’t your typical buyer that may need to sell a house before moving into a new one.
Ready to sell your house the simple way? You don’t need to deal with contingencies in real estate. Reach out to HomeVestors to get a free consultation toward a convenient offer.
This blog is for informational purposes only and should not be considered legal advice.
