What Is A Real Estate "Contingency Clause"?

by Greg Cryns

Let's say you are selling your house. Someone makes you an offer. They submit a tentative contract to you for your approval. They want you to sign it and make it an official contract that could be upheld in court. For any contract to be valid there needs to be 1) an offer; 2) an 

acceptance. Your signature on that tentative contract will make the contract enforceable. If the buyer handed you the money immediately on your acceptance you would probably not be able to back out of the contract under ordinary circumstances. 

Let's say that you have not signed the offer because you see that the buyer need to sell the home he now lives in before he can cement the deal with you. You need time to think this over because the market is not exactly in the seller's favor. Maybe you want another month to try to find a buyer who can get a mortgage immediately.

In essence, a "contingency clause" In a real estate transaction that would allow a buyer to step out of the contract under certain specific conditions. 

Some Common Contingencies Clauses

1. Attorney Approval - gives the buyer some time to show the contract to his attorney.

2. Inspections - most contracts are subject to a professional inspection to determine if there are structural defects on the building(s)

3. Financing - buyer's need to know they can obtain a mortgage or other financing

4. Building code - the buyer sometimes will ask that previous work on the building was done with in compliance with building codes

5. Asbestos, flood, radon earthquake, water and sewer contingencies are fairly common 

6. If the house is in a rural area and relies on its own well and septic, there will usually be a contingency clause that requires inspection of the well and sewer.

Contingencies are usually meant to protect buyers from events like a badly drafted purchase contract or a home that has defects. 

The seller may put in the contract that the property is sold "As Is". Depending on your specific state laws, the seller may be required to disclose known problems the house has. These often include structural damage, water leakage and plumbing problems. 

As always, it is cheap insurance to have a good attorney to preside over the contract negotiations.

Selling your home as a necessity to compleat deal

This contingency usually includes a "kick out clause." This is a statement that tells the buyer that he must remove the contingency within a certain number of hours or risk voiding the contract. 

Contracts of For Sale By Owner 

Think

Try not to make many contingencies. Doing so may raise a red flag in the seller's mind and could cost you the house of your dreams. Try to learn more about the area you are going to buy into. This way you can answer many questions that would potentially be solved by contingency clauses. 

Communicate

The key to good deals (WIN-WIN) is good communication. Sometimes you may need to go over your attorney's head and talk with the other party directly. Do what you must do if you feel it is in your best interests.

Greg Cryns is the owner of Flat Fee Real Estate Guide - http://www.flatfeerealestateguide.com