Buying a home in Aspen is a big deal – but for most people, the terminology gets a bit confusing. One thing you’re likely to hear (and possibly even read about in your own contract, whether you’re buying or selling) is the term contingency. So what is a contingency in real estate, and what kind of impact will it have on your real estate deal?
Here’s what you need to know.
What is a Contingency in a Real Estate Contract?
A contingency is a condition that has to be met before the deal can go through. They’re part of real estate purchase contracts to protect buyers and sellers. If someone doesn’t meet one of the conditions of the contract, the other party can walk away from the deal; that’s because the party that didn’t meet the condition already broke the contract.
Some contingencies are very common in real estate transactions.
The Most Common Contingencies in Real Estate Contracts
Some of the most common contingencies in real estate contracts, which you may see in your own contract, cover things like:
- Selling an existing home before the transaction can go through
- Allowing a buyer to secure financing before finalizing the contract
- The home appraisal
- The home inspection
Here’s a closer look at each.
Common Real Estate Contingency #1: Selling a Home
Sometimes a buyer needs to sell his or her current home before committing to buy a new one. For this reason, many real estate contracts contain a contingency that says if the buyer can’t sell in time to buy the new home, he or she is “off the hook.”
Common Real Estate Contingency #2: Securing Financing
Most contracts include a financing contingency that says if a buyer can’t secure financing (and seal the deal with the mortgage lender) before closing day, he or she doesn’t have to buy the home. This protects buyers from being forced to buy a home with money they don’t have – and it protects sellers from having to come up with a plan for collecting the cash.
Common Real Estate Contingency #3: Home Appraisal
Mortgage lenders won’t let people borrow money until they’re certain it’s worth every penny the borrower is asking for, so they typically send out an appraiser. The appraiser determines how much the house is worth. If the house appraises for less than the asking price (or the amount that the buyer wants to borrow), the lender might still allow the buyer to finance the appraised price – but not another dime. If the buyer can’t afford to buy the home without financing and the seller isn’t willing to budge on price, this contingency lets the parties break the contract without consequences.
Related: What is a home appraisal contingency in real estate?
Common Real Estate Contingency #4: Home Inspection
Good REALTORs® encourage buyers to have a home inspected before signing the dotted line. That’s because an inspector might uncover issues that the seller hasn’t told them about – either purposefully or accidentally. The conditions that turn up during the inspection may be deal-breakers for buyers, so when an inspection report comes back with something that sends the buyer running, the contract can be broken.
Are You Selling or Buying a Home in Aspen?
If you’re ready to sell your home in Aspen, Woody Creek, Basalt, Carbondale or Snowmass, we may be able to help you.
Get in touch with us right now to find out how much your home is worth – and discover how we’ll be able to help you sell it quickly and for top dollar.
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