What Homebuyers and Sellers Need to Know About Contingencies

What are contingencies when buying or selling a home?

If you’re considering buying or selling a house, a term that you’re likely to hear pop up is “contingency.” It’s also, unfortunately, a term that’s hard to define without using the word in the definition! Here’s a basic overview:

A contingency is can be thought of as a safety net that buyers put in place when they want to make sure they are purchasing a property that’s met certain conditions. The goal of a contingency is to remove them by fulfilling the criteria that the contract sets out. Many purchase offers have three traditional contingencies:

  1. Oftentimes, a buyer will want their attorney to take a look at their purchase contract.
  2. Typically, buyers want inspections, including a full home inspection.
  3. Most buyers also need to get a mortgage to purchase the home.

Let’s explore these contingencies further:

Attorney Review

A purchase contract to buy a home can be very dense and full of “legalese,” so it may benefit buyers and sellers to have their attorney review it! A real estate attorney can ensure that any conditions of the contract are fair and won’t damage their client’s finances. This doesn’t have to take a long time – many attorneys can spend 10 or 15 minutes reviewing a purchase offer with their client to ensure that it’s a solid contract. This will remove the attorney approval as a contingency of the sale.

Home Inspections

Generally speaking, buyers don’t want to purchase a house that has a non-functioning furnace or a leak in the roof. Typically, buyers ensure that a home that they want to purchase is free of disastrous defects by having professional inspections. Buyers usually make their purchase offer contingent upon having various inspections, including a full home inspection. Sometimes, buyers will have other types of inspections, too, such as a mold inspection. These home inspections involve professionals taking a look at different parts of the house to see whether or not they will require any repairs.

Based on a report from the inspections, buyers may ask sellers to make different repairs that they decide are necessary for them to feel comfortable moving forward with the purchase. Buyers and sellers agree to a list of repairs, and the inspection contingency can be removed as a contingency of sale. After a real estate office receives a signed Inspection Contingency Removal, the purchase can move forward and will typically be marked as “pending” in the Multiple Listing Service (MLS).

Mortgage Contingency

Many buyers require a mortgage in order to purchase a property. If a buyer didn’t put a mortgage contingency into their purchase contract, they could possibly be sued by the home’s seller for non-performance if the buyer wasn’t able to secure a mortgage. So, a mortgage contingency allows the buyer to find financing, and obligates them to move forward with the purchase only if they are able to find financing from a bank or another lending institution.

After a buyer has been approved to move forward with a mortgage, the bank will issue an approval letter. Once this happens, the buyer can remove a mortgage contingency and move forward with the sale. Oftentimes, this will be the last contingency to be removed before the purchase of a home.

“Contingent Offers”

Sometimes, a homebuyer may need to sell their existing home before they can purchase a new one. This is what real estate agents will often call a “contingent offer.” Even though there are often lots of contingencies, as we outlined above, they are fairly common and so don’t typically hold up the sale of a home.

However a “contingent offer” that requires a buyer to first sell their existing home may not be as appealing to a seller, and so it isn’t as common. While there are certainly sellers who may be willing to work with a buyer who needs to sell a home first, it can often benefit the buyer to explore programs like Howard Hanna’s Buy Before You Sell, which allows them to sell their existing home after purchasing a new house.

Buying your first house? Read our guide today!

While we’ve covered four common contingencies that can be included in a purchase offer, there are other contingencies that may come up! However, these common contingencies are what homebuyers and sellers are most likely to encounter.

2 thoughts on “What Homebuyers and Sellers Need to Know About Contingencies

  1. Helen Casey on

    Just playing catch up and so enjoyed reading Marks overview of contingencies * Mark did a great job of outlying and defining how contingencies affect the transaction from the beginning of negations. He hit it right on the head when he said the only time most of us refer to contingent sales is when there is a sale of buyers residence clause . The other contingencies have become almost standard .
    Thanks Mark , well done .
    * most of our states don’t have attorney review but the process and handeling of contingencies is the same everywhere .

  2. This article will help me pass my Real Estate license one day 🙂 Thank you! It’s a keeper!

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