What are some common real estate contract contingencies?
Real Estate Contract Contingencies are conditions which must be met if a contract is to be performed. The types of contingencies vary from state to state.
- Contingent on Sell of Existing Home with Break Clause: A seller may accept a contract with a contingency on the sell and/or close of the buyers existing home. A Break Clause (Alabama) allows the seller to retain the right to sell his property to another party after giving the buyer a 24-72 hour notice (can vary) to remove the contingency. The buyer may remove the contingency and provide proof that they can consummate the sale or release the seller from the contract thus allowing the seller to move forward with the new contract.
- Appraisal Contingency: Any buyer who receives a loan will be required by the lender to obtain an appraisal in order to justify the purchase price. Purchase of the property is contingent upon the appraisal being at or above the purchase price, in most cases.
- Mortgage Contingency: Usually such a contingency calls for a buyer to apply for a loan within a certain period of time after the contract is signed. Although a buyer may have a loan preapproval letter, further investigations concerning the property or the borrower could result in a loan denial.
- Home inspection Contingency: Buyers have the right to have a home inspector conduct a complete inspection of the property with a contingency upon a satisfactory inspection revealing no significant defects. A contingency could also be made on the satisfactory repair of certain items noted on the inspection, prior to purchase/closing on the property.
- Lead-based Paint and/or Lead-based Pain Hazards Contingency: The Federal laws gives all buyers 10 days to inspect for lead-based paint and are given certain information before buying, renting or renovating pre-1978 housing. Many houses built before 1978 have paint that contains high levels of lead.
- Termite and/or Wood Destroying Pest Inspection Contingency: Most often, there is a provision placed into the Purchase Agreement giving the buyer a short time period to have the house inspected for wood destroying insects. (Sometimes, a home inspector also has a license to inspect for termites.) The contract should specify who will pay for the inspection and what structures are included in the contract coverage.
- Sewer/Septic Systems Inspection Contingency: Buyers are given the opportunity to obtain a sewer/septic inspection prior to closing on the property. Sewers and Septic lines can get clogged from tree roots or deteriorate over time. Plumbing companies can insert a camera into the sewer line to check for damage. It is also recommended that you have a septic tank system cleaned and inspected prior to purchase for the same reasons as a sewer system inspection.
- Radon, Mold or Asbestos Inspections Contingency: Depending on a visual inspection, sometimes home inspectors will call for additional inspections by licensed entities to check for special situations such as radon gas, mold or asbestos.
- Clear Title Contingency: Seller agrees to furnish buyer a standard form owner’s title insurance policy issued by a company qualified to insure titles in Alabama, in the amount of the purchase price, insuring buyer against loss on account of any defect or encumbrance in the title. Seller shall have reasonable length of time within which to perfect title or cure defects in the title to the Property.