A contingency clause allows for the termination of a real estate agreement if certain conditions are not met. Generally, these clauses are designed to protect buyers from purchasing a property if one of their requirements isn’t met. How can these clauses affect real estate closings for sellers? Sellers may have to contend with delays or even the collapse of a deal if a contingency clause is acted upon.
The residential real estate closing process is already fraught with potential pitfalls. The inclusion of a contingency clause can introduce more uncertainty for sellers. For sellers, understanding these clauses is essential as they can affect the timing, security and overall success of the closing process.
Financing contingency
As the name suggests, a financial contingency allows a buyer to back out of a real estate agreement if they don’t succeed in securing financing for the home purchase. Of course, this can be a double-edged sword for sellers; while it protects them from transacting with an unqualified buyer, it can also lead to delays or cancellations if the buyer’s financing falls through.
Inspection contingency
When a real estate contract has an inspection contingency, the buyer is allowed to inspect the property within a certain timeframe before making a buying decision. Suppose the inspection reveals issues with the property that the buyer isn’t uncomfortable with; they have three options:
- Withdraw from the deal with no penalties
- Renegotiate the buying price
- Request the seller to make necessary repairs
For sellers, this means potential delays and additional costs if repairs are necessary to satisfy the buyer.
Appraisal contingency
An appraisal contingency can be a concern for a seller because they may end up selling their property at a lower price than they initially anticipated. This provision stipulates that upon appraisal, the property’s market value should correspond with the seller’s asking price. If the appraisal comes in lower than expected, the buyer can renegotiate the price or back out of the contract.
Contingency clauses play a significant role in residential real estate closings and can profoundly impact sellers. By understanding the types of contingencies and their potential effects, sellers can better navigate the closing process. Proactive strategies such as conducting pre-inspections, setting realistic prices and being prepared for negotiations can help sellers manage contingencies effectively and achieve a successful closing.