For many people, buying a new home is the most significant purchase they will ever make. Even for a relatively small house, the cost can be well over $100,000.
All monetary purchases are government by contract law, and real estate transitions are no exception. Purchase agreements used in real estate are legally binding for both buyers and sellers.
Nonetheless, putting contingency clauses in purchase agreements offers a safety net to both buyers and sellers. Outlined below are two of the more common types of contingency clauses.
1. A contingency related to another sale
There aren’t many people who have immediate finances in place to purchase real estate. Many people have to first sell their current home before moving. This allows them to put the proceeds from that sale toward the new property.
It is possible to use a contingency in a purchase agreement that prevents the deal from becoming legally binding until the prior sale has gone through. Should the prior sale not go through, both buyer and seller can walk away without penalty.
2. Contingencies related to finances
Most people buy real estate through a mortgage loan. This provides buyers with the bulk of the finances. However, mortgage applications can be rejected or may collapse in the middle of a deal. A contingency related to mortgage approval protects both buyer and seller should the finances for a transaction not be approved.
Contracts should be fair to all parties. When a deal isn’t meant to be, it is usually best if both buyer and seller can get out of the agreement quickly, and contingencies allow this. To assess your options in more detail, it may benefit you to seek legal guidance.
