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How do you manage contract contingencies?

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Contract contingencies are clauses in a real estate contract that allow either the buyer or the seller to cancel the deal if certain conditions are not met. They are designed to protect both parties from risks and liabilities, but they can also cause delays, disputes, and frustration. How do you manage contract contingencies effectively and avoid losing your dream home or your earnest money? Here are some tips to help you navigate the process.

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1 Understand the common contingencies

When it comes to contract contingencies, there are a few common ones that buyers should be aware of. Home inspection contingency allows the buyer to request repairs, negotiate a lower price, or walk away from the deal if the home inspection reveals major defects or problems. Financing contingency allows the buyer to cancel the deal if they cannot secure a mortgage loan within a specified time frame or with acceptable terms. Appraisal contingency permits the buyer to cancel the deal if the appraised value of the home is lower than the agreed-upon price. Sale of current home contingency allows the buyer to cancel the deal if they cannot sell their current home within a specified time frame or for a minimum price. Lastly, title contingency gives buyers the option to cancel the deal if any liens, encumbrances, or defects that affect the ownership or transfer of the property are revealed in the title search.

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2 Review and negotiate the contingencies carefully

Before you sign a contract, make sure you understand and agree with all the contingencies and their deadlines. If you are the buyer, you want to have enough time and flexibility to complete your due diligence and secure your financing. If you are the seller, you want to minimize the chances of the deal falling through and avoid losing other potential buyers. You can negotiate the terms and conditions of the contingencies with the other party, such as the duration, the scope, the remedies, and the waivers. You can also add or remove contingencies depending on your situation and preferences. For example, if you are a cash buyer, you may not need a financing contingency. If you are a seller in a hot market, you may not accept a sale of current home contingency.

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Rafael R.
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In my view, the most important contingency as a buyer— especially when a seller is pressuring for an offer— is a well drafted inspection contingency with an exit for any reason or for no reason. This time is valuable not only for purposes of inspecting the home but also as a tool to negotiate other items that are identified post-signing.

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3 Communicate and cooperate with the other party

Communication and cooperation are key to managing contract contingencies smoothly and successfully. You should keep in touch with the other party and their agent throughout the process and update them on your progress and status. You should also be responsive and respectful to their requests and concerns. If you encounter any issues or challenges, you should inform them as soon as possible and try to find a mutually acceptable solution. You should also be prepared to compromise and be flexible if needed. For example, if the home inspection reveals minor issues, you may agree to split the cost of repairs or accept a credit instead of asking for a price reduction. If the appraisal comes in low, you may agree to meet in the middle or use a different appraisal method.

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4 Fulfill your obligations and remove the contingencies

To avoid any legal or financial consequences, you should fulfill your obligations and remove the contingencies according to the contract. This means that you should complete all the inspections, appraisals, loan applications, and other tasks within the specified time frames and provide the necessary documents and evidence to the other party. You should also follow the proper procedures and forms to remove the contingencies in writing. For example, you may need to sign a contingency release form or an addendum to the contract to indicate that you are satisfied with the outcome and ready to proceed with the deal. You should also keep copies of all the records and receipts related to the contingencies for future reference.

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Rafael R.
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A list of key dates early on in a transaction is a helpful way to know when each contingency expires, and is a useful tool for undertaking the necessary tasks as each contingency due date approaches. It is important to pinpoint the “Effective Date” correctly, as this date is often created by the timing of signatures,as opposed to an expressly written date. This becomes relevant because the Effective Date can control all of the other deadlines in the contract.

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5 Seek professional guidance and assistance

Managing contract contingencies can be complex and stressful, especially if you are not familiar with the legal and technical aspects of real estate transactions. That is why it is advisable to seek professional guidance and assistance from qualified and experienced agents, attorneys, lenders, inspectors, appraisers, and other experts. They can help you understand your rights and responsibilities, review and negotiate the contract terms, handle the paperwork and communication, resolve any disputes or problems, and protect your interests and goals. They can also save you time, money, and hassle by avoiding common mistakes and pitfalls.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How do you manage contract contingencies?

1

2

3

4

5

6

1 Understand the common contingencies

2 Review and negotiate the contingencies carefully

3 Communicate and cooperate with the other party

4 Fulfill your obligations and remove the contingencies

5 Seek professional guidance and assistance

6 Here’s what else to consider

Real Estate

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How do you manage contract contingencies?

1

2

3

4

5

6

1 Understand the common contingencies

2 Review and negotiate the contingencies carefully

3 Communicate and cooperate with the other party

4 Fulfill your obligations and remove the contingencies

5 Seek professional guidance and assistance

6 Here’s what else to consider

Real Estate

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