A contingency is an addendum to a real estate contract. A contingency acts as a legal safeguard, allowing a party to back out of a real estate purchase or sale if the terms of the contingency are not met. In these situations, the real estate contract is considered legally void. When a contingency is satisfied, the real estate agreement becomes legally binding on both the buyer and the seller.
New York real estate attorney Melvin Monachan explains the contingencies commonly found in real estate contracts.
Home Inspection Contingency
It is difficult for a buyer to completely assess the condition of a home during a walkthrough. Hidden defects can easily go unseen in even the most appealing of properties. A home inspection contingency allows a buyer a specific amount of time to have their potential new home inspected by a professional who will investigate for structural, electronic and plumbing defects. If the inspection results reveal severe defects or the necessity for substantial repairs, a buyer may back out of the real estate contract. If a home inspector finds the need for expensive repairs, a homebuyer may use this information to negotiate a lower asking price with the seller.
Obtaining a mortgage is a necessary step for most buyers in the home buying process. A mortgage contingency, sometimes called a financing contingency, provides a homebuyer with a specified amount of time in order to obtain financing to purchase their new home. A mortgage contingency protects a buyer in the unfortunate event that they cannot obtain financing by allowing them to back out of the real estate contract. In most cases, a mortgage contingency is carefully worded to protect the seller as well. The contingency may require that the homebuyer use their best efforts to obtain financing. This prevents a buyer from making an offer on a home that they are not serious about purchasing. A seller may require that a buyer provide evidence that demonstrates an effort to obtain financing. A mortgage contingency may be waived by the homebuyer, making them legally obligated to purchase the property even if they cannot secure funding.
A sale contingency is commonly used when a homebuyer is also a homeowner. In these cases, a buyer must sell their current residence before moving forward with a new purchase. With this contingency, if a homebuyer is unable to sell their existing home, they may void the real estate contract. A seller may refuse to include a sale contingency addendum in the real estate contract as sellers may be wary of engaging with homebuyers who have to settle the burden of selling their existing home before moving forward with a new transaction.
Contact Real Estate Attorney Melvin Monachan
There are many complicated steps involved in buying or selling a home, especially when contingencies are involved. Attorney Melvin Monachan has years of experience representing both buyers and sellers in contingency matters in New York. Give us a call at (516) 714-5763 for a free consultation today.