Real estate contingencies are conditions which must be met for a contract to be binding and valid. The buyer and the seller must both agree to the contingencies, and sign the contract in order to make them binding.
A seller can expect standard contingencies to be included in a real estate offer: title, inspection and, unless it is all-cash, appraisal and loan.
Take a look at the most common real estate contingencies.
Standard Contingencies
Title Contingency
The buyer will state that the offer to buy real estate is conditional on the buyer approving the title. It may say: After reviewing all disclosures and reports including the preliminary title report, the buyer finds the property satisfactory.
The escrow company in California delivers the title report and the buyer is required to review it by the contingency removal deadline.
Inspection Contingency
The buyer has the right to inspect your property and see your disclosures including your termite inspection report.
The clause may be:
The sale is conditional upon After a professional inspection and review of all disclosures and reports, the Buyer finds the property satisfactory.
Buyers are not required to proceed with the purchase until they are satisfied. This gives buyers a great deal of power, and disadvantages sellers. It is rare for a seller to attempt to remove the inspection clause. Sellers should instead consider shortening contingency removal dates so that the buyer’s inspection clause is only temporary.
Appraisal Contingency
You should expect that your real estate contract will include an contingency if the buyer obtains a bank loan in order to buy your property.
It may say: The Buyer is required to receive an appraisal of the Property from a certified appraiser at a price equal to or higher than the Purchase Price.
As part of the approval process, banks almost always require an appraisal. As a seller you will need to find a buyer who is paying cash. You can sometimes remove the appraisal clause from the contract as a seller and the buyer will accept that. The buyer will still get an appraisal, but will pay more upfront and accept a smaller loan amount in the event that it is low.
Loan Contingency
You should expect to see a financing contingency in the offer if the buyer uses a bank to finance part of the price. The language could be: Buyer’s offer is conditional on the buyer obtaining a $[X] mortgage.
A seller is unlikely to remove the loan condition because buyers who require a loan are unlikely to proceed without one. You will need to look for a buyer who is willing to pay cash if you are not comfortable with the loan contingency. Sellers sometimes try to counter the length of the contingency. Buyers will often insist that the contingency be in place until the loan has been funded. The seller may argue that the contingency has to be removed within 17 business days after the acceptance of an offer.
Non-Standard Contingencies
Contingency Sale
The number one contingency that a seller should avoid is an conditional on the sale another property. We do not recommend working with a buyer that must sell their own home before buying yours. If they can’t sell their home, it could mean that your sale falls through.
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