What is a contingency contract in real estate?

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A contingency contract in real estate is essentially a clause within the document that enables the buyer to effectively cancel his obligation to move forward in the transaction. While the contingencies permitted may vary from state to state, there are five main clauses that are regularly used in real estate contracts on a national basis.

Passing a Home Inspection

The home inspection contingency clause states that should the buyer's home inspector uncover problems with the dwelling, and the seller does not wish to remedy the issues, the contract may be cancelled.

Contingent Upon Home Loan Approval

Real estate and mortgage professionals routinely include a home loan contingency clause that enables the buyer to terminate the contract if he makes an offer on the house but is not approved for the loan.

Does the Appraisal Match or Exceed the Asking Price?

Real estate contracts routinely include an appraisal contingency that states the appraisal must be as much or more than the seller's asking price. In the case of obtaining a government-backed loan, such as FHA or VA, appraisals are heavily relied upon to determine whether funding is approved.

Contingency of Clear Title

A buyer must know the property he is purchasing has a title free of liens and judgements. As such, purchase contracts regularly include a contingency specific to the delivery of clear title. If the seller cannot produce a clear title search, the buyer may cancel the contract.

Roof Evaluation Stipulation

Replacing the roof on a home can be a very costly occurrence. Therefore, most real estate purchase contracts include a roof inspection contingency that enables the buyer to avoid completing the acquisition if the roof is not up to par.

Source:

Realtor Mag: Contract Clauses: friend or foe?

RealEstateABC.com: Contingencies & Negotiations in Real Estate Contracts

More Information:

National Association of Realtors

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What is a contingency contract in real estate?

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