As a Realtor, I quite often prepare the initial contract for the purchase of a property. Part of my job is to explain the terms of the contract to the buyers or sellers. And most of the time, the contract has a few “contingencies”. But exactly what is a contingency?
According to the dictionary, a contingency is a possible event or occurance, along with a guideline of what may happen should an event or occurance arise. Did that help? Probably not. I’ll explain in a little more depth, and give specifics on some of the more common contingencies.
Contingency For The Old Home Sale
You have a contract to sell your existing home. You make an offer on your new home, but you cannot conclude the sale unless the sale of your old home closes, because that is where the money to buy will come from. If, for some reason, the sale of your old home does not close, you do not have to purchase the new home.
Contingency For Financing
If you will be taking a mortgage, and you do not get approved for the mortgage, you will not be able to proceed with the purchase. The contract will be voided.
Contingency For The Appraisal
Again with a mortgage, the bank orders an appraisal. The bank needs to be sure that they will not loan more against a a property than it is worth. If the appraisal is less than the sale amount, the buyer can ask the seller to reduce the price. If the seller is unwilling, the buyer can cancel the contract.
Contingency For an Inspection
The buyer has the right to hire an inspector to, well, inspect the house. Should any serious defects be found in the house, the buyer has the right to request that the seller remedy the defects. If the seller will not comply, the buyer has the right to cancel the contract. For more info regarding home inspections, read some previous blog posts at www.55plusinmonmouth.com/blog/
Contingency For Obtaining Homeowners Insurance
If the buyer is unable to obtain homeowner insurance, the buyer has the right to cancel the contract. If there is a mortgage involved, the bank will not allow a closing if there is no insurance.
There are many other contingencies that may cover a wide range of circumstances. If you believe you have a special circumstance, consult your attorney. Or you can discuss with your Realtor, who should be me of you are reading my blog. Call me, Art Reiman, at 732-598-7700 with questions.