The three contingencies in a contract to purchase real estate (and why they matter)

There are three important contingencies baked into the contract that all Capital Region real estate professionals use and it’s important for both buyers and sellers to fully understand them.

Attorney Approval: The contract is contingent on both parties getting approval from their respective attorneys and this section outlines the date by which this approval should occur.

Mortgage contingency: Unless the buyer is paying cash (or waiving the mortgage contingency for some other reason), this section outlines the type of loan they are seeking (conventional, FHA, VA), and the amount they are mortgaging. It also indicates how quickly they will begin the mortgage application process as well as the date by which they will receive their mortgage commitment from their lender. Should a buyer be including a seller concession, this will also be noted in this section. A seller concession is credit towards closing costs, which basically allows buyers to mortgage some expenses, thereby allowing them to bring less cash to closing.

Inspections: Unless the inspection contingency is waived, this section outlines the inspections that will occur (structural, wood destroying organisms (pests), septic, well, radon) as well as the date that the inspections will be completed by and the date by which the seller will be notified of any substantial defects. This section also indicates the expense threshold that designates a defect as “substantial” (typically $2000 for a single item).

All three contingencies are designed to protect the buyer’s interest and only the attorney contingency protects the seller as well. Should issues arise related to the inspection (for example a substantial defect is uncovered and the buyer requests a credit off the purchase price) or during the mortgage application process (maybe the buyers aren’t able to get their mortgage commitment by the agreed upon date), the seller has the ability to respond to any requests the buyer may make but only the buyer can use those two contingencies to be released from the contract.

 Questions about this or any other real estate related issues? Let us know!

Photo credit: iStock.com/Wasan Tita