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What are Contingencies on a Contract?

Contingencies are commonplace in contracts of all kinds. A contingency allows for one party or another to legally back out of a contract in the event of some specific condition occurring. They are protection against the unknown.

In real estate, there can be contingencies inserted for either buyer or seller or both. These take many different forms and until removed in writing, either party may change their minds based on the result of the contingent event or issue.

Some examples of home buyer contingencies:

  • Home inspections – condition of the home
  • Specialty inspections – mold, geological, roof inspections
  • Code Violations – an investigation into improvements made without permits
  • Lender appraisal – ensures the offered price is not too high
  • Sale of current home – allows the buyer to back out if they cannot sell their current home in specific time frame
  • Final loan approval – loan is ready for signature and close
  • HOA CC&Rs – review of documents to ensure rules and regulations do not infringe on enjoyment of property
  • Insurability – home owner’s insurance available at a reasonable rate

Home sellers can also have contingencies included as well, such as one which states the sale is contingent on finding a replacement home. Contingencies are a fact of contract law. In real estate, they ensure that the offer is concluded as expected.

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