Contingencies article

What About Contingencies
In A Contract?

Provided by Jay Burnham, VP
Coldwell Banker Residential Brokerage

Real estate agents often talk about the merits of a contract with as few contingencies as possible. Such a contract, or purchase offer, is more likely to be considered than one that's complicated by lots of contingencies, restrictions and conditions.

A contingency in a real estate purchase is something that must be satisfied in order for the sale to go through. Contingencies protect buyers and sellers, but they also provide opportunities for real estate transactions to fall apart.

For example, the buyers may need to sell another property to come up with enough cash for the down payment. If their property sells, the deal goes forward. If it doesn't, the deal is off. Other common contingencies are for inspections, for financing, and for approval by other parties (like attorneys or accountants).

Less common contingencies are sometimes more difficult to satisfy. Perhaps the buyers only want to buy a property if they can modify it, or use it, for a specific purpose. For example, they might need city approval to run a day-care center.

Seller contingencies can also complicate matters. For example, a property that's being sold to settle an estate might require court approval of the sale. In this case, the buyers don't know that the house is theirs until the sale is confirmed in court.

Given the emotional nature of home buying and selling, most buyers and sellers prefer the cleanest contract possible. Buyers often shy away from buying homes where the sellers have complicating factors effecting the sale, like a requirement for court confirmation. Sellers often reject an offer if it's contingent on the sale of another property. In both cases, the degree of uncertainty is high.

Being able to offer a clean contract may give you an advantage when negotiating with the sellers. This is particularly so if you find yourself competing with other buyers for a property. Put yourself in the seller's shoes. The fewer strings attached to an offer, the better the chance it has of going through. The more contingencies there are, the more opportunities there are for something to go wrong.

HERE'S A TIP: Even though a clean contract may give you a competitive edge, you shouldn't delete contingencies from your offer if, in fact, you need to satisfy certain conditions in order to close the sale.

For example, if you need to line up a mortgage in order to close, you will need a financing contingency. If you write your offer without a financing contingency, you may risk losing your deposit money if you can't get the loan.

Rather than giving up the contingencies you need, shorten the time period required for satisfying these contingencies as much as possible. A typical financing contingency is about 30 days following acceptance. If you can shorten this by a week or two, the sellers will know they have a solid deal that much sooner.

In order to shorten a financing contingency, you need to be planning ahead. Many buyers get preapproved for the loan they need. To get preapproved you must submit a loan application and documentation such as verifications of employment and down payment. You must have your credit checked. Then the lender gives you loan approval subject to you finding the home you want to buy.

Buyers who aren't preapproved when they enter into contract to buy a home will need to submit a loan application within a day or so of acceptance to get approved within 2 to 4 weeks.

IN CONCLUSION: To make an offer more likely to be considered, get your financing set up and take care of as many conditions as possible before you start negotiating.

JAY BURNHAM, VP
Coldwell Banker Residential Brokerage
PREVIEWS International® Property Specialist
54 Dodge Street
Beverly, MA 01915
978.233.2828

Designations Earned: CRB, CRS, GRI, RECS, SRES