Should You Avoid Contingencies in a Seller’s Market?

Should You Avoid Contingencies in a Seller’s Market?

What Is a Real Estate Contingency? 

A real estate contingency is a clause in a purchase agreement that specifies an action or requirement that must be met for the contract to become legally binding. Both buyer and seller must agree to the terms of each contingency.  

Types of Contingencies  

To determine whether you should avoid contingencies or not in a seller’s market, it’s essential to know the common types of contingencies and their pros and cons.  

Appraisal Contingency  

  • What is it: An appraisal contingency protects the buyer by stating that the property must appraise for the indicated sale price, or the contract can be nullified. 
  • Pro: In a seller’s market, this contingency gives you as a home buyer protection because this clause could release you from paying more than what the home is worth.  
  • Con: Since buyers are usually desperate to purchase in a seller’s market, they sometimes agree to pay over the appraisal value to secure their home. This makes a buyer who wants this contingency less desirable.  

Mortgage Contingency 

  • What is it: A mortgage contingency is a clause that gives buyers a certain amount of time to receive financing to buy a home. If the buyer cannot find the financing to buy the home, the buyer can pull out, and the seller can put the home back on the market. 
  •  Pro: As a buyer in a seller’s market, this contingency gives you time to secure financing for your new home. 
  • Con: Sellers could want a buyer who already has their financing secure.  

Title Contingency 

  • What is it: In real estate, a title is the record of its ownership. Usually, a title company or an attorney will review the title before closing and resolve any potential issues. By resolving any issues, the title can be cleared for the buyer. However, sometimes the title report issues cannot be solved before closing. This is when the title contingency can come into play. The title contingency allows buyers to leave the sale rather than dealing with contested ownership or paying off the previous owner’s debt.  
  • Pro: As the potential buyer, you can ensure that your title will be cleared before you purchase the home.  
  • Con: In a seller’s market, a seller may not want to wait for the title to be reviewed.  

Home Inspection Contingency  

  • What is it: The home inspection contingency deals with the home inspection buyers can have. During this home inspection, if serious issues are found, the seller can choose to repair these issues, or if not, the buyer can terminate the contract.  
  • Pro: As a buyer, getting a home inspection before you make a purchase helps ensure that your home is damage free. 
  • Con: If damages are found during an inspection, the seller may refuse to fix the damage. If you choose to waive this contingency, you could be taking a huge risk as a buyer. 

Home Sale Contingency  

  • What is it: A home sale contingency helps the buyer because it’s a clause stating that their pre-existing home must be sold before purchasing another home.  
  • Pro: If you need money from the sale of your old home and you have failed to find a buyer, you can leave the contract.  
  • Con: Most sellers do not accept offers with home sale contingencies because they receive offers without any contingencies in a seller’s market. Therefore, a seller does not want to risk taking their home off the market just for their home to be put back on the market.  

What If the Contingency Isn’t Met?  

If any contingency is not met, the seller or the buyer can void or terminate the contract. Therefore, having contingencies is like having a safety net for both the buyer and the seller. 

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To figure out whether you should use a contingency when buying a home, do some research and talk to your real estate agent to make sure you are making the best decision for you and your family.

Written By 

Helen Wells

Presented By:

Richard Clarke 

The Peoples Realtor 

Licensed In NJ and DE with EXIT Realty


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Author:
Phone: 856-469-9200
Dated: January 18th 2024
Views: 45
About Richard: My name is Richard Clarke, I have lived my whole life in Southern New Jersey. I am 4th generation to...

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