During a real estate transaction, there are a few common contingencies both buyers and sellers should be aware of, since they can affect whether the deal closes or not.
The contingencies are contained in the offer from the buyer. The seller, however, can decide whether or not to accept them.
Perhaps the most common – and reasonable – contingency is a home inspection. A buyer may have walked through the property only a time or two. A professional is often needed to look beyond the surface to make sure the structure and systems are sound.
While sellers tend to always accept this contingency, the buyer has only a limited time – usually a week – to complete the inspection and decide whether to proceed. If the inspection uncovers a defect that would require extensive repairs, the buyer can ask the seller to repair it, or simply nullify the deal without loss of earnest money.
In some cases the seller can specify that inspections will be “for informational purpose only,” meaning there will be no repairs made or no adjustment to the price. The buyer then is assuming a bit more risk, paying for the inspection but having to walk away from the deal should something troubling show up.
If the property is part of a homeowners association (HOA), the seller is usually required to provide a copy of the covenants and bylaws to a prospective buyer. There is usually a a contingency allowing the buyer to walk away should there be something unexpected in the document.
Sellers don’t normally like to call attention to overly restrictive requirements in the HOA bylaws while marketing a property. That’s why buyers normally insist on this contingency, especially when buying a condo and townhome.
If the buyer makes an offer but needs to sell his or her home first, the contract will often make the sale contingent on the buyer being able to sell his or her property first.
It is up to the seller whether to accept this, and in an active real estate market, it is likely to be rejected. The seller assumes risk by taking the house off the market for three months or so while the buyer’s home is for sale. In an active market, a seller could miss two or three opportunities during that time.
A careful buyer may ask for a lot of contingencies. A seller may reject some or all. In most cases, the current state of the real estate market will dictate how it goes.