Contingencies in offer contracts and what exactly they mean


What are contingencies in an offer contract?

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.

Is there a percentage calculation that I should do to decide what dollar amount to offer for a house? Unfortunately there is no mathematical shortcut to determine what to offer. Some sellers put their house on the market for the exact amount of money they want to receive. This is especially true when a seller has already reduced the price of his or her home. Most sellers add a little wiggle room in the price to allow for negotiations, but the amount of wiggle room is not a set percentage. Remember that when you make an offer on a house, three things can happen.

  1. The seller can accept the offer.
  2. The seller can reject the offer. Then you can make another offer.
  3. The seller can make a counteroffer. This is the most common response.

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Note: This article was sent to us by: Tom A. Erklay at 06112010

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