What Is A Contingency? Contingencies are contractual requirements regarding fundamental aspects of the transaction upon which settling the contract is dependent. Because a home is an expensive and complex structure, it is often difficult or costly to address all issues prior to agreeing on the terms of a purchase or sale. The real estate industry uses “contingencies” to help outline the needs of buyers and sellers and to encourage accurate and clear communications during the transaction in an effort to reach an agreement. Although you should be able to depend on the expertise of your agent, it is critical you understand the importance of contingencies, the purpose of them and how agents draft them.
Why Are Contingencies Necessary? These requirements usually can’t be confirmed during the negotiation process due to time and cost constraints involved in satisfying issues like financing, inspections and appraisals. If certain requirements are miscommunicated, or not included in the offer but are necessary to either party, problems are likely to occur. This is true for both buyer and seller. The purpose of contingencies is to allow the parties to accept a conditional agreement prior to incurring the time and cost required to verify representations, investigate pertinent details or complete critical actions. This is an area where you must communicate clearly and read the contingency carefully to verify your conditions are understood. Click here to learn the details.
Let’s look at some specific questions sent in by DearMonty readers from across the country. Read more Q&A articles about the “Satisfying Contingencies” stage of the Home Buying process: