A contingency in any contract is something that if it does not happen then the contract becomes void. Every real estate offer should have contingencies written in. These protect the buyer from being forced into a deal that is not what the buyer wants.
There are four common contingencies that should be in all offers.
1. The house must have a title free of liens. This means that the sellers are the legal owners of the house and can prove it by having a title that does not have another person’s lien on it. Liens can be anything from an IRS lien for taxes not paid, a contractor’s lien for unpaid construction bills, a debt collector’s lien for unpaid debts, to an ex-spouse’s lien due to a divorce. A lien is a legal document that was issued by a judge to make sure a debt gets paid, even if that payment is out of the proceeds of a house sale.
2. The house must pass inspections such as those for termites, radon, mold, well and septic problems, plus others used in that part of the country.
3. The house must pass a total residential inspection that will look at every aspect of the house and its flaws.
4. The house must pass a professional appraisal for at least the purchase price. This contingency is usually required by the lender who makes the mortgage on the home. If the house cannot be appraised at the amount you are offering to pay for it, it is doubtful that you can obtain a mortgage without a larger down payment.
The buyer can successfully obtain a mortgage on this property. If a buyer, for whatever reason, cannot get financing to complete the purchase of this home, this contingency eliminates the buyer’s obligation to go through with the purchase.
There are other contingencies that a buyer may want to include. If there is personal property that is passing from the seller to the buyer such as furniture or appliances, the buyer may want to make this a contingency to the deal. In a buyer’s market, the buyer may be able to include that the purchase of the house is contingent on the buyer selling his or her house first.