You could say that no real estate purchase contract is complete without contingencies. These conditions allow the buyer to back out of the deal or go back to renegotiate it if certain events occur.
The importance of these provisions in your home purchase contract cannot be stressed enough. Even though you walked through the home and made an offer that the seller accepted, the deal cannot close until all due diligence is complete. During this time, you will more than likely find out just what it is you are buying, and you may not like it.
Most people include these contingencies
Below are the most commonly seen issues for which contingencies are put into real estate purchase contracts:
- If the appraisal comes back lower than the price you agreed to pay, you want the ability to renegotiate the price.
- If the home inspection reveals major issues that require expensive repairs, you want the ability to walk away, negotiate a price reduction or negotiate repairs prior to closing that are subject to another inspection and paid for by the seller.
- If for some reason the financing falls through, you want the ability to walk away from the sale or extra time in order to find a new mortgage lender.
- If the title report indicates deficiencies or other problems, you should have the right to walk away from the sale or to take the time to clear the title, if possible.
- If a wood-destroying pest inspection reveals a termite problem, you want the ability to have the seller make the required repairs and get rid of the pests, or to walk away from the purchase.
- If a roof inspection reveals the need for expensive repairs, you could return to the negotiating table or walk away.
- If the home contains substances such as lead-based paint, asbestos, mold or radon, you may want to terminate the contract or renegotiate its terms.
- If the sewer system or private well fails to pass inspection, you want the choice of walking away or negotiating repairs.
- If the seller failed to make the legally mandated disclosures regarding the home, you should not have to go to closing.
- If you currently own a home, you may want to include a contingency that the purchase cannot close until you sell it.
- If your home sells before the closing can take place, you may want a contingency, allowing you to rent the home you want to purchase from the seller until closing.
- If the neighborhood has an HOA, you may want the chance to review its documents prior to closing. Any serious issues may allow you to terminate the purchase contract.
As you can see, you need to protect yourself from a variety of potential problems you couldn't anticipate when you walked through the home and decided to put in an offer. Without these contingencies, you could end up with a home you didn't expect or want.