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By John R. Merlino Jr. Esq.
Founding Attorney

Buying and selling a home can be a stressful process, especially with all of the contracts and paperwork. Within your real estate contract, you may find contingency clauses, which could affect your transaction. 

What is a contingency clause?

When something is “contingent,” it means something will occur depending on other circumstances. 

In real estate, a contingency clause is a clause added to a real estate contract that establishes that the contract is legal and binding depending on the satisfaction of certain actions or conditions. These clauses offer buyers and sellers an extra layer of protection. 

Because your ability to sell your home or buy a new home can be so greatly affected by contingency clauses, it’s critical to remain aware of these clauses in your contract and understand what they mean. 

Contingency Clauses Commonly Found in Real Estate Contracts

Several contingency clauses exist, depending on the needs of the seller or buyer. A real estate contract may have one or several contingency clauses, or none, as they are not required. 

Some of the common real estate contingency clauses are as follows:

Financing Contingency

A financing contingency, also commonly referred to as a mortgage contingency, gives the buyer in a real estate transaction the opportunity to pull out of the deal if they cannot obtain proper financing (a mortgage). 

Appraisal Contingency

A real estate appraisal provides the value of the home based on several factors. When a buyer attempts to get financing, most home lenders will not approve a loan if the loan amount is more than the value of the home.

When a real estate contract includes an appraisal contingency, the buyer can back out of the transaction if a home appraisal reveals that the value of the home is actually lower than the price they offered.

Inspection Contingency

A home inspection contingency lets a buyer back out of the sale if an inspection reveals substantial problems with the property. This clause could also facilitate a negotiation between the buyer and seller to make repairs on the seller’s dime. 

Home Sale Contingency

Under a home sale contingency, a buyer’s ability to buy their new home is based on their ability to sell their current home, typically within a specified timeframe. 

Why You Should Stay Mindful of Contingency Clauses in Your Real Estate Contract

It is always critical to be aware of every key detail in a contract, especially contingency clauses. Here are four reasons why.

1. A Contingency Clause Requires Taking Some Action

Depending on the type of contingency clause in your contract, you will likely have to take some action. Whether it be setting up an inspection or selling your current home, you must understand what needs to be done under the contract.

2. There Is a Contingency Period to Ensure All Contingencies Are Met

Based on the contingency in your contract, you’ll have a certain amount of time to meet the requirements in the clause. This helps ensure contingencies are hopefully met sooner rather than later, allowing both parties to do what’s necessary. 

3. Contingency Clauses Could Affect Your Ability to Buy or Sell Your Home

Certain contingencies could hinder the buying or selling of your home. For example, if you have a home sale contingency and the buyer does not sell their home in time, it could interfere with the sale.

4. Contingency Clauses Can Prolong the Closing Process

Contingencies must be met within a certain amount of time. However, during the contingency period, you cannot close, which means that you’ll have to wait a little longer.

Discuss Contingencies with a Real Estate Attorney

It is important to thoroughly review your contract to determine whether your contract has any contingencies, and if so, begin working on getting the conditions met in order to proceed. To avoid any issues, it’s best to discuss your real estate contract with a real estate lawyer. 

The experienced legal team at Merlino & Gonzalez is ready to assist you with buying or selling your home. We proudly serve clients in Staten Island, NY, and East Brunswick, NJ. Contact us to schedule your consultation today.

About the Author
John is a fierce advocate and the office guru for problem-solving and brainstorming. He guides clients through every stage of a real estate transaction from offer to contract, navigating through nerve-shattering home inspection and title clearance concerns, maintaining constant contact with lenders, conducting the actual closing, and continuing to advise clients with regard to any post-closing concerns.  John brings a practical and fair-minded approach to the process which has earned him the respect of his clients and peers.