If you buy or sell a home you may hear talk about what real estate contingencies are in a contract. Understanding what real estate contingencies are and what bearing it may have on you is important.
What is a Real Estate Contingency?
A real estate contingency is a clause in a real estate contract where certain criteria need to be met by a certain date. If the party cannot perform by that date, they have the option to nullify the contract with no recourse. It is basically an option one party negotiates to back out of a contract if they cannot meet certain conditions.
Two Standard Real Estate Contingencies in a Massachusetts Real Estate
There are typically two real estate contingencies in a standard Contract to Purchase and Purchase and sale in Massachusetts.
They are commonly accepted as the “norm” for a home buyer to include in a contract and widely accepted by a home seller. Bear in mind, when multiple offer are tendered, there may be buyers willing to remove these real estate contingencies and with all things being equal , this could put you at a disadvantage if you don’t. Nor for most buyer’s should you.
The two contingencies you will see in most real estate contracts are:
1-Mortgage Contingency or Finance Contingency
A mortgage contingency will state that the buyer will need to obtain mortgage commitment by a certain date. It protects the home buyer from being denied a mortgage and losing their good faith deposit money. Remember a pre-approval letter from your lender is not a commitment to lend. A mortgage commitment is just that, a commitment to lend under certain conditions.
This is an excerpt from the Massachusetts Standard Contract to Purchase regarding the Mortgage Contingency:
a.Mortgage (Delete If Waived) The BUYER’S obligation to purchase is conditioned upon obtaining awritten commitment for financing in the amount of $X.XX at prevailing rates, terms and conditionsby (Insert date) The BUYER shall have an obligation to act reasonably diligently to satisfy any condition within the BUYER’S control. If, despite reasonable efforts, the BUYER has been unable to obtain such written commitment the BUYER may terminate this agreement by giving written notice that is received by 5:00 p.m. on the calendar day after the date set forth above. In the event that notice has not been received, this condition is deemed waived. In the event that due notice has been received, the obligations of the parties shall cease and this agreement shall be void; and all monies deposited by the BUYER shall be returned. In no event shall the BUYER be deemed to have used reasonable efforts to obtain financing unless the BUYER has submitted one application by and acted reasonably promptly in providing additional information requested by the mortgage lender.
2- Home Inspection Contingency-
b. Inspections.(Delete If Waived) The BUYER’S obligations under this agreement are subject to the rightto obtain inspection(s) of the Premises or any aspect thereof, including, but not limited to, home, pest, radon,lead paint, septic/sewer, water quality, and water drainage by consultant(s) regularly in the business of conducting said inspections, of BUYER’S own choosing, and at BUYER’S sole cost within (X) days after SELLER’S acceptance of this agreement. If the results are not satisfactory to BUYER, in BUYER’S sole discretion, BUYER shall have the right to give written notice received by the SELLER or SELLER’S agent by 5:00 p.m. on the calendar day after the date set forth above, terminating this agreement. Upon receipt of such notice this agreement shall be void and all monies deposited by the BUYER shall be returned. Failure to provide timely notice of termination shall constitute a waiver. In the event that the BUYER does not exercise the right to have such inspection(s) or to so terminate, the SELLER and the listing broker are each released from claims relating to the condition of the Premises that the BUYER or the BUYER’S consultants could reasonably have discovered.
Other Real Estate Contingencies
We discussed two real estate contingencies that are standard in most contracts. But, almost anything can be a contingency. I have seen or written contracts with contingencies for verification of funds, funds being sent from another country, pet approval at a condominium, an offer letter for a job…. You name it and someone has probably seen a contingency around it.
Here are a few contingencies that can commonly be seen:
House to Sell Contingency
Find Suitable Housing Contingency
About Real Estate Contingencies- What They May Cost You
What To Do If Your Are Approached With A Real Estate Contingency
Understanding Real Estate Contingencies- What Are They And When to Use One was written by Kevin Vitali of EXIT Group One Real has a strong marketing plan that will get your house sold or the experience to help a home buyer through the home buying process. Want to discuss your upcoming move call me at 978-360-0422.
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