There are many important inclusions in real estate contracts. Seemingly minor details in a contract can have major implications for the buyer and the seller. Buyers often do not give the terms of the offer they make adequate attention.
Frequently, those hoping to purchase residential real estate want to make their offers as attractive as possible. They may do that by limiting the contingencies that they include in their offer, giving the seller plenty of time to move out and being generous regarding the amount they offer.
While bypassing contingencies can certainly inspire a seller to select an offer, the buyer risks their earnest money by eliminating their contingencies. They may then find themselves struggling to move on from a failed transaction.
What contingencies do for real estate buyers
A contingency is essentially a clause creating a scenario in which one party can cancel an agreement without incurring penalties. Contingencies allow buyers to cancel a closing even after the seller accepts their offer in specific circumstances.
In a residential real estate scenario, buyers usually prove their sincere intent to complete the transaction by depositing earnest money. Typically, the minimum amount of earnest money is at least 1% of the purchase price. Buyers seeking a high-demand property might deposit much more than 1% of the proposed purchase price as earnest money as another way to stand out to a seller.
That money is essentially a promise that the buyer intends to follow through on the transaction. If they cancel the closing, the seller can sometimes keep that earnest money. Contingencies provide scenarios in which the buyer can cancel the closing without losing the funds deposited as earnest money.
People frequently have inspection contingencies in case the property has defects they were unaware of or appraisal contingencies in case the home is worth less than they offered and they cannot secure a mortgage. Survey contingencies are popular when a property includes a sizable parcel. The exact protections buyers require depend on the unique characteristics of the property.
The creation of appropriate offer documents can help protect those seeking to acquire residential real estate. They can preserve their earnest money with contingencies in a scenario where completing a transaction might otherwise prove disadvantageous. Buyers who know what is at risk can use the right strategies to protect their interests.