Home Buying Contract Contingencies

Questions That Must Be Answered Before You Close on the Real Estate

Home buying contingencies are written clauses in your contract that give you time to evaluate some aspect of the property before you proceed to closing. Think of them as questions that must be answered or events that must (or must not) take place. If contingencies aren't met, the wording should allow you to back out of the contract with no penalties.

Common Home Buying Contingencies

The pre-printed contract forms used by real estate agents always include common contingencies, some on the main body of the form and others that can be added as separate pages. Use the pre-printed forms when possible instead of writing your own contingencies, because forms are written to adhere to the laws of the state they are used in.

Financing

The contract should outline the type of financing you are willing to accept and include a clause that releases you from the purchase if those terms cannot be obtained.

Home Inspections

The contract should include wording about your rights to home inspections, including the dates by which inspections will be completed.
Contingencies should outline the options available to you if the home needs more repairs than you are willing to take on.

Additional Inspection Contingencies

Contingencies that deal with the presence of radon, mold, and other toxic substances.
A contingency that allows you to perform inspections for wood destroying insects, such as termites.
A test to verify that private well water meets acceptable health standards.
Tests to verify that a septic system or well is functioning properly.

Additional Contingencies

Surveys Buyers often make approval of a property dependent on the results of a boundary survey.

You might expect it to show there are a minimum number of acres; that a specific lot line is where the seller says it is; or that neighbors have not encroached the property (built on it).

Sewer Vacant land that does not have public sewer access requires a septic system. The offer should be contingent on approval to install the type of waste system required to service the home you intend to build.
Water In some areas you might need to verify that you own water rights to the property so that you can dig a well.
Appraisals Use this when the appraisal must show that the home's value matches or exceeds its price.
Deeds The offer should state what type of deed the seller will give you at closing, along with statement guaranteeing that the real estate will be free of liens and problems created by all past owners.
Easements Can others use the property, such as accessing a right of way across it to get to another? You definitely want to know if that type of easement exists before you decide to buy the home.

Be Specific

Contingencies are useless if they do not explain what you're trying to achieve. Here are some examples of poorly written contingencies that offer no protection for a buyer.

Contingent on a Radon Test
What about the test? What results are you're looking for?
Contingent on a Septic Permit
What type of permit do you need? A conventional system? For how many bedrooms?
Contingent on a Water Test
What do you want the test to verify? That bacteria levels are below those accepted by public health standards? That the water has no heavy metals or pesticides in it?

State exactly what type of results are acceptable.

If You Must Sell Your Home First

You can make an offer that's contingent on the sale of your current home--meaning that you cannot purchase until the current home is sold. Some sellers will accept such offers, others won't.

That type of contract usually includes a "kick out clause," a statement that basically says: "if we get another acceptable offer, you have "X" number of hours to remove your sales contingency and move forward to buy the house, whether you've sold your current house or not." If you cannot move forward, the seller can back out of your contract.

For Sale By Owner Contracts

For your protection, always use California Association of Realtors (CAR) Contracts.

Bottom Line

If you're buying close to home, you might know which contingencies are important. Seek help from a real estate attorney or experienced agent if you are buying property in a town you aren't familiar with, because there could be problem issues in that area that you are not aware of.
Try not to go overboard with unnecessary contingencies. That always makes sellers wonder if you are looking for an easy way to back out of the contract.

Every contract is unique. Take some time to brainstorm before you make an offer to purchase. Outline your questions, turning them into contingencies that explain what you want to do and what results you expect to see. If you are unsure how contingencies should be worded, seek advice from a Empire Realty Professional.