If you are purchasing or selling a home in Indiana, your real estate contract will likely contain several contingency clauses. It is important to know about some common types of contingency clauses and what they mean.
A real estate contract governs the terms of the entire real estate transaction. However, sometimes unexpected or unplanned events occur that could jeopardize the transaction.
Contingency clauses address what to do in these types of situations. The purpose of contingency clauses is to give the buyer or seller the right to cancel or modify the terms of the contract in certain circumstances.
Appraisals and financing
Some common contingency clauses involve appraisals, financing and inspections. As the buyer, you may agree to the transaction only if the real estate appraisal comes back above a specific price. If the appraisal is under this required minimum, the contract may allow you to back out or seek another appraisal.
One of the most important contingency clauses involves financing. Real estate transactions depend on the buyer being able to secure financing to complete the sale.
Contingency clauses regarding finances are often detailed and contain deadlines. For example, the financing contingency clause could state that the buyer has a certain number of days to secure financing through a specific type of loan for a specific amount.
Inspections
Inspection contingency clauses are also extremely important. Most real estate transactions depend on the property passing inspection.
If an inspection reveals unknown defects or problems with the property that lower its value or, in the worst case, make it uninhabitable, the contingency clause can give the buyer the option to cancel the sale or the seller time to fix the problems.
Contingency clauses can address almost any issue the buyer and seller agree upon. The clauses go both ways. In addition to allowing the buyer to back out of the sale if contingencies are not met, the buyer is usually legally obligated to proceed with the transaction if the contingencies are met, even if they change their mind for other reasons.