3 important contingency clauses in real estate

On Behalf of | Jul 11, 2024 | Real Estate |

Whether you’re buying or selling, contingency clauses are an essential ingredient in your real estate contract. 

A contingency clause is any part of the agreement that outlines specific conditions that have to be met for the sale to proceed. Some are written to benefit the buyer, while some protect the seller – but they’re all designed to be fair and help ensure a smooth transition of ownership. If a contingency clause isn’t met, the parties can walk away from the deal without facing any penalties. 

What are some of the most essential contingency clauses? Consider these:

Financial contingencies

This kind of clause really cuts both ways and can address the reality that there’s never anything 100% certain when it comes to obtaining financing. It sets a time limit within which the buyer must obtain financing for the deal, and can even include information about what type of loan is involved. 

For example, the contingency can state that the buyer doesn’t have to accept a loan with an interest rate above a certain amount, so they aren’t stuck with a loan they can’t really afford. The time limit favors the seller so that they aren’t stuck waiting around endlessly for the buyer to get financed.

Inspection contingencies 

These help the buyer make sure that they’re getting what they expect in the deal. While buyers are encouraged to eyeball a property carefully, it can be difficult for a nonprofessional to spot any issues that are carefully hidden by cosmetic fixes.

If the inspection turns up something unexpected, the buyer can negotiate for repairs, ask for a price reduction or even back out of the purchase.

Appraisal contingencies

An appraisal contingency helps ensure that a property is properly valued – and they’re usually required if the buyer needs to get a bank loan. 

Sometimes there’s an issue where the appraisal and the agreed-upon purchase price don’t overlap. At that point, the buyer may be asked to pay the difference in cash, or the seller may be asked to lower the price. 

What sort of contingencies you ask for in a contract can depend a lot upon the current real estate market in your area. Seeing professional guidance can help you avoid emotional decisions that put you at a disadvantage. 

Beverly Hills Bar Association | Lead. Advocate. Serve.
Super Lawyers
The State Bar Of California | July 29 1927
LACBA | Los Angeles County Bar Association
ABA Defending Liberty Pursuing Justice