When it comes to buying or selling a property, most purchase agreements are contingent – meaning that certain conditions must be met before the sale can be finalized. These contingencies protect both the buyer and the seller from potential risks and uncertainties, providing an extra layer of security throughout the transaction process.
So, what are the most common types of contingencies found in purchase agreements?
1. Financing Contingency: This type of contingency is typically included in a purchase agreement to ensure that the buyer can secure financing for the property. It gives the buyer a specific timeline to obtain a mortgage loan and states that if the buyer is unable to secure financing, the sale will not go through.
2. Inspection Contingency: An inspection contingency allows the buyer to hire a home inspector to evaluate the property and identify any potential issues or defects. If the inspector finds something concerning, the buyer can request that the seller make repairs or negotiate a lower purchase price.
3. Appraisal Contingency: An appraisal contingency requires that the property be appraised at a certain value before the sale can proceed. If the appraisal comes in lower than the agreed-upon purchase price, the buyer can request that the seller lower the price to match the appraisal or the buyer can back out of the sale altogether.
4. Title Contingency: A title contingency ensures that the seller has clear title to the property and can legally transfer ownership to the buyer. If there are any liens or encumbrances on the property, the sale cannot go through until they are resolved.
While these contingencies may seem like roadblocks, they are actually in place to protect both the buyer and seller. Without contingencies, the buyer could find themselves in a precarious financial situation, while the seller could be left with a property that is difficult to sell due to unforeseen issues.
It’s important to note that contingencies can also be waived or modified by agreement between the buyer and seller. For example, if the buyer is paying cash for the property, they may choose to waive the financing contingency.
In conclusion, contingencies are a necessary component of most purchase agreements. They provide a level of security for both the buyer and the seller, ensuring that the sale only proceeds if certain conditions are met. As a buyer or seller, it’s important to carefully review all contingencies in the purchase agreement and work with a trusted real estate professional to ensure that all parties are protected throughout the transaction process.
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