A house is among one of the biggest investments that you are going to make in your life. An average home seller or homebuyer is not aware of the Home Sale Contingencies involved in a real estate transaction. Most of the real estate contracts comprises of these contingencies to ensure smooth processing. If you are planning to sell or buy a new house, here is a quick advice for you.
What are Home Sale Contingencies?
According to Wikipedia,
“Contingencies are conditions which must be met if a contract is to be performed.
Contingencies that suspend the contract until certain events occur are known as “suspensive conditions”. Contingencies that cancel the contract if certain event occur are known as “resolutive conditions”.
Most contracts of sale contain contingencies of some kind or another, because few people can afford to enter into a real estate purchase without them. But it is possible for a real estate contract not to have any contingencies.”
Let us find out two most important contingencies in current real estate market.
- Settlement Contingency: A settlement contingency comes into play when a buyer has his house marketed with a contract and settlement date in hand. This contingency protects buyer and prohibits seller from accepting other offers for the property for a given period. The deal closes successfully if the settlement is done by the due date or terminates in case of failure.
- Sale and settlement contingency: Sale and settlement contingency is a common practice used by buyers who have not marketed their homes or receive offers for their existing property. The seller has every right to market his/her property to the potential customers. In case the seller receives multiple offers, the buyer will have up to 48 hours to settle or remove the contingency. Failing in the removal of the contingency can terminate the contract.
How do home sale contingencies affect a seller?
According to real estate experts, home sale contingencies pose potential risks for the sellers. Most of the potential homebuyers avoid properties that are already under a contract, so you might even lose some potential buyers because of the contingency.
What should you investigate before entering a home sale contingency?
- Is the home already on the market?
- What is the average closing time in the neighbourhood?
- Is the home listed at an appropriate price?
- For how long has the home been listed in the market?
A home sale contingency is suitable for sellers who are not getting any offers for their property. However, it is important to limit the period (usually 4 weeks) within which the buyer has to complete the transaction. You should opt for a “kick-out clause” in the contract, which allows you to market your house to other potential buyers.
How do home sale contingencies affect a buyer?
A home sale contingency is an excellent bargain for the buyer, and allows him/her to sell the previous house before taking a new ownership. As a buyer, you can avoid having two mortgages simultaneously and your new home is already locked in. However, if the deal does not close on time, you might lose money on home inspections, bank transaction fees, and even appraisal fees. You might even end up paying more for the same property with a home sale contingency in force.
Home sale contingencies can serve both buyers and sellers efficiently. It is important to read the terms in the contract before placing a contingency on your house. Get legal help for smooth processing of the transaction.