Buying Real Estate, Real estate

What Is a Contingency Clause in a Home Buying Contract?

12_Hunter-kit2 Kirkland


If this is your first time buying a home, you might feel a bit intimidated by the purchase contract. Contracts are often filled with industry and legal terms making them difficult to understand for the average buyer and seller.

Contingencies in particular give some buyers and sellers cause for concern because their contract depends on the contingencies being fulfilled. However, in most cases contingencies are pretty standard and only serve to protect the interests of both the buyer and seller during a real estate transaction.
In today’s post, I’m going to give you an introduction to contingency clauses and break down some of the most common contingencies you’ll find in today’s real estate purchase contract.

Contingency clause definition

Simply stated, a contingency clause is a statement within a contract that requires a certain event takes place before the contract is considered legally valid. As a result, contingency clauses are used to cancel or invalidate a contract if certain conditions aren’t met before the sale is made final. So, if one party fails to meet the obligation of the contingency, the other party is no longer bound by the contract (or required to buy or sell the house). Any contingency clause that is entered and becomes part of the contract must have a date specified for that particular contingency to be satisfied. It is always best practice to keep these dates realistic in time frames, and to adhere to the overall duration of the offer contract. If a contingency date goes by without being completed, the offer is negated or no longer in force. If a buyer anticipates a problem in adhering to a contingency date, they can request an extension. This extension must be agreed to by both parties in writing to extend the contract.
Contingencies can get confusing when they are vaguely worded , making them difficult to interpret. For the standard contingencies below, it is fairly easy to understand there purpose, time frames and what they are for.
The other instance in which contingency clauses can be confusing is when a party includes a contingency that is atypical for a real estate purchase contract. Buyers and sellers alike should be wary of unusual contingencies, explore what the intent of the specific language is. Only when these unusual contingencies have been fully understood and agreed by both parties, should the contract be signed. An experienced Realtor and or attorney shall be able to provide guidance.



The main contingencies in a offer to purchase

Appraisal contingency. Designed to protect the buyer, appraisal contingencies require that a home is appraised at a minimum amount, which is stated in the contract. It is very common to see appraisal contingencies written on most offers, especially if there have been multiple offers. When multiple offers are received, the ultimate sale price tends to be above asking. It is always a best practice for any Buyer agent to include and appraisal contingency in this instance, as this will protect their buyers interest and assure that the investment is a good value.
Financing contingency. Another contingency geared toward protecting buyers is the financing contingency. It states the number of days that a buyer has to secure financing for the home. This allows the buyer to cancel the contract (and offer) if they’re unable to secure suitable financing for the home. The time frame for finance contingency on an average offer is approx. 35 days but can vary based on the duration or overall time frame of each specific offer.
A particular area of scrutiny for a finance contingency is the percentage of money that a buyer will be putting down. This percentage can vary based on a buyers financial position. The more money put into the deal the better for a seller as this shows financial strength of the buyer and results is less money being borrowed. From the lenders perspective a healthy LTV or loan to value is favorable as this shows borrows will have more equity in the purchase and are less likely to default on the loan. If they do, there is more chance for the bank to recoup the mortgage on the property.
Inspection contingency. One of the most important and most common contingencies is the inspection contingency. It allows the buyer to have the house inspected by a licensed professional within a certain number of days. The most common time frame for a home inspection is 7-10 days after an offer to purchase has been agreed upon and signed by all parties. This contingency protects the buyer against unforeseen expenses and repairs that will need to be made in the near future. Many contingency pages on a offer to purchase will allow inspections on a myriad of aspects in a home. They can include all mechanical aspects such as wiring/electrical components, furnace/boilers, roofs, windows, siding, appliances. Also typically included will be any structural items, a pest and radon inspection.
House sale and kick-out contingencies. A house sale contingency gives the buyer a certain number of days to sell their home before financing a new one. However, since this can be a risky clause for sellers, a kick-out clause is often included. This contingency allows the seller to keep the home on the market and entertain other offers while the buyer secures financing and sells their other home or homes. You tend not to find these contingencies being used in busier markets when buyer demand is high and inventory is tight. This can be a vital and welcome contingency for a Buyer who is able to find a cooperative Seller, which can produce a win-win for both parties.

Buying Real Estate, Mortgages, Real estate

Buy a Home in a Hot Housing Market


Let’s face it – buying a home in a hot housing market is no easy task. In the past year of 2017 we have seen a short supply of homes available. The year of 2018, doesn’t promise to be any better accoring to Lawrence Yun, NAR’s chief economist.This of course creates stress knowing that you need to compete with other Buyers to win the deal!For example, if you wait too long to submit an offer on a house, you risk losing this residence to a rival buyer. On the other hand, if you rush to submit a home offer at or above a seller’s initial asking price, you risk spending too much to acquire your dream residence.

Clearly, there’s a lot to think about as you search for a home in a hot housing market. Lucky for you, we’re here to help you overcome myriad home buying hurdles and acquire your dream residence, even in a hot housing market.

Let’s take a look at three helpful tips to help you succeed as a home buyer in a hot housing market.

1. Narrow Your Home Search

In a fast paced market it is extremely difficult stay informed and up to date on ALL of the homes that become available. You can find your self rushing from town to town, putting in offers only to be beaten out by someone who has had a laser focus on the community, knows real estate values and will write offers accordingly.

By narrowing your focus it will enable you to become an expert in your chosen town, and get to know the “pulse of the market”. You will need to create a list of what type of home you want, your must haves and wants, and of course your appropriate price target. This will help speed up the home-buying process.

Once you have a home buying checklist in hand, you should have no trouble evaluating residences in a hot housing market. Then, you can check out these houses in person a with a qualified Realtor and move one step closer to submitting an offer to purchase for your dream house.

2. Get Pre-Approved for a Mortgage

This is huge…!

To acquire a home in a hot housing market, you’ll likely need a mortgage. It is most important to have a pre-qualification in hand prior to making any offers. All Sellers will be looking for this to be submitted  in conjunction with the offer. If you are able to get a pre-approval that is even better.

What is the difference between a pre-qualification and a pre-approval? A pre-qualification shows that you have basically discussed numbers with a mortgage representative and provided basic information about employment. The pre-approval shows the seller you actually have financing in place, have gone through the approval process with a lender of your choice and are just waiting to find the perfect home. This can be most appealing to a seller who could have the luxury of reviewing multiple offers and wants to choose the one with the least amount of risk.

There are many qualified lenders available that can teach you everything you need to know about a wide range of mortgage options.

Lenders can explain the differences between adjustable and fixed-rate mortgages, describe exactly how a mortgage works and much more. That way, you can assess many mortgage options and select one that matches your finances.

After you obtain a mortgage, you can enter a hot housing market with a home buying budget. This will enable you to further accelerate your home search and ensure you can quickly submit an offer as soon as you discover your ideal residence.


3. Collaborate with a Real Estate Agent

This is most important!

Navigating a hot housing market can sometimes can be tricky, particularly for a home buyer who is competing against dozens of rivals. It is always best to hire a qualified real estate agent. A good agent can help with comprehensive support as you pursue a home in a hot housing market.

Try and seek out an agent that has experience in representing Buyers.

This agent should be able to provide not only information on the home you are interested in, but also vital stats on the town, the neighborhood, schools etc. You should also ask your agent to provide a specific value evaluation on the home you are considering, which can guide on the dollar amount of your offer . Having this information can be key to understanding  values and to assure you are making an educated bid to capture your dream home.