Imagine you’ve found your dream home. It’s in the perfect neighborhood, has all the features you’ve been searching for and you can already picture your future there. However, before you commit to buying the home by signing the purchase contract, there’s a crucial element you need to consider – contingency clauses.
Contingency clauses in your home purchase contract release you from any contractual obligations if certain conditions are not met. In other words, they allow you to cancel the deal or negotiate the terms without losing your earnest money.
Common contingency clauses in home purchase contracts
Contingency clauses depend on the terms and conditions negotiated between the buyer and seller in a home purchase contract. Some common contingency clauses include:
- Financing contingency – This clause allows you to walk out of the deal if you cannot secure financing for the home. You can exit the contract if you cannot secure suitable mortgage terms within a specified period without any financial penalties.
- Appraisal contingency – This clause becomes relevant when the property’s appraised value falls short of the agreed purchase price. You can use this contingency clause to renegotiate the price with the seller or exit the contract if the appraisal poses financial concerns.
- Home inspection contingency – The home inspection contingency permits the buyer to have the property inspected by a professional inspector. If significant issues or defects are found that were not disclosed by the seller, the buyer can request repairs, a price reduction or terminate the contract.
- Title contingency – This clause ensures that the property has a clear title and is free of legal encumbrances. If title issues arise during the due diligence period, you can cancel the contract or ask the seller to resolve the problems.
- Sale of current home contingency – If you need to sell your existing home to fund the new purchase, this contingency allows you a specified period to sell your current property. If the sale doesn’t occur within that time frame, you can terminate the contract without incurring legal or financial penalties.
Contingency clauses serve as a safety net by providing an exit strategy if unforeseen challenges arise during the home-buying process. They also present an avenue for negotiations if unexpected issues arise. Therefore, it helps to seek legal guidance in navigating the complexities of home purchase.