When purchasing a home, there are a number of protections—called contingency clauses—that you can write into your contract to allow you to back out of the sale for specific reasons. For instance, if your inspection reveals major problems with the home that the seller can’t or won’t fix, your loan financing falls through, you find out the HOA rules or neighborhood weren’t what you were expecting, etc. The sheer quantity of available contingencies is dizzying. Our list includes 26 provisions alone on preprinted forms, not including any specific requests your broker might negotiate in.
Clearly, not all contingencies are used in a typical transaction and many make your offer less competitive. Still, we think it’s critical for you to understand the legal implications and trade-offs of each contingency so you can make the smartest decisions possible.
We’ll start with contingencies that relate to financing. Except in extremely competitive situations or non-financeable home sales (think dilapidated homes, major structural issues, or land-value sales), a financing contingency is relatively commonplace. It generally protects you in the event you can’t secure a loan (provided you follow the agreed upon protocol). It includes an appraisal contingency to protect you in the event the lender feels the homes is worth less than you agreed to pay for it.
If you have an existing home that needs to close before you can complete your home purchase, there are two standard contingencies available to you. The first, Buyer’s Sale of Property Contingency, is used when you have not yet secured a buyer for your current home. It sets time periods to both actively list your home for sale and to secure a buyer contract. It ties the closing of your new home to the closing of your current one, and because of this, sets very specific protocols for accepting an offer. It has a bump provision that allows the seller to accept a non-contingent offer if you don’t remove your contingency within a predetermined time frame.
The second contingency, Buyer Pending Sale of Property Contingency, is used when you have already secured a buyer for your home and are awaiting its closing. Because your home is already under contract it is far less controlling than the Sale of Property Contingency, but it protects you if your first sale falls through.
Less common financial contingencies include a standalone appraisal contingency available for cash transactions, a seller-financing attorney review, and a contingency related to homeowner’s insurance availability.
Home and Property Condition
In highly competitive situations a buyer may need to conduct their due diligence before making an offer. In most other scenarios, though, the buyer has countless opportunities to investigate a potential property and walk away or renegotiate if it doesn’t measure up to expectations.
The inspection contingency includes the ability to evaluate the structural, mechanical, and general condition of the structure(s), compliance with building and zoning codes, an environmental or hazardous materials inspection, a pest inspection, and a Geotech or soils and stability inspection. In addition, it includes the option to allow a sewer system inspection or a neighborhood review and permits an inspection to determine the presence or non-presence of oil storage tanks on the property.
Specific separate contingencies allow for evaluation and review of documentation related to wells and septic systems, assessment the presence of lead-based paint, or review of lease agreements for components like propane tanks, security systems, and satellite dishes, etc.
There is an option to make the sale contingent upon seller providing a home warranty or require cleaning and personal property removal prior to buyer taking possession.
Buyers wanting to determine if a home or property is suitable for their intended use (think building, remodeling, platting or development) would incorporate a feasibility contingency into their offer. Buyers of vacant land might include the Land and Acreage Development and Use addendum that incorporates both disclosures and contingencies.
Built into the standard local purchase and sale agreement is an Information Verification Period that gives the buyer 10 days (unless modified) to verify statements made by the seller of listing firm related to the property.
In Washington State, the buyer most commonly receives a deed at the time they purchase a property. That deed is subject to financial liens and encumbrances, restrictions, and physical encroachments. A standard title review contingency allows the buyer the opportunity to review these items and object to any they cannot live with. A buyer has the option to complete a survey of the property boundaries and purchase extended title insurance if desired. Surveys are exceedingly expensive and most typically completed on valuable parcels of land such as waterfront and commercial property.
Community and Homeowners Association
Many communities have homeowner’s associations that govern rights and responsibilities within a community. A homeowners’ association review contingency requires the seller to deliver documents and meeting minutes to buyer that are then subject to buyer’s approval.
Condominiums and Common Interest Communities are also regulated by statute and have specific requirements for review and approval of budgets, documents and meeting minutes like traditional contingencies. Although governed by statute, it’s important for buyers to ensure they receive and review the resale certificate or public offering statement within the allotted time frame to avoid an automatic waiver.
Perhaps you are making an offer in a community or neighborhood you know nothing about and don’t have enough time to check it out. A neighborhood review contingency allows you to do things like research crime statistics, talk with neighbors, explore traffic patterns, and check the noise level (nothing like finding out about that incessantly barking dog after closing). This is something that ideally you do before writing your offer to make it as strong as possible, but it’s nice to know its available in a pinch.
When buying a property subject to an existing lease that will continue after closing, a lease review contingency will require the seller to deliver a copy of the lease along with books, records and other agreements and provide for your review and approval within a specified time frame.
Finally, an attorney review contingency will allow you a defined time period with which to have your attorney review and approve specific provisions or the entire purchase contract.
No two homes, buyers, or sellers are the same. Every offer you write should be tailored to the specific situation. Nothing tops having an experienced broker to guide you through the process. This is what we do every day. Together, we’ll create the best strategy for you.
Choosing the right broker can save you thousands on your home purchase. Whether through local market knowledge and pricing analysis allowing you to make a smarter offer, recommendations and resources to thoroughly conduct your due diligence and avoid costly mistakes, or savvy contract negotiation to help you get the terms you need, having a Windermere broker on your side is one advantage you can’t afford to sacrifice.
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