Making an offer to purchase real property is a massive commitment. With residential property, there is an expectation that a would-be buyer should deposit earnest money with their real estate agent or the agent representing the seller. That earnest money applies toward their down payments if they reach an agreement with the seller. It can also be at risk if the buyer suddenly cancels the transaction after reaching an agreement to purchase the property.
Those making an offer on real property generally have an obligation to follow through on that offer. Yet, aspiring buyers who create custom purchase agreements and offer documents can protect themselves from financial devastation with the inclusion of the right contingencies.
What are real estate contingencies?
When someone makes an offer to purchase real estate, they do so based on what they currently know about the property. A cursory walkthrough, the current market in the area and disclosures from the seller are often the most important considerations when buyers decide what price to offer. They are then responsible to the seller and must follow through on their offer.
Contingencies are clauses that give them an opportunity to renegotiate or cancel their offer in very specific circumstances. With the right contingencies, buyers can walk away from a real estate transaction without the loss of their earnest money. The most common contingencies address issues that could arise for the buyer or with the property before the closing occurs.
Inspection contingencies are common. If an inspector turns up significant, expensive issues with the property, an inspection contingency gives the buyer a chance to renegotiate with the seller or walk away from the closing.
Appraisal contingencies can protect a buyer’s earnest money if the appraisal comes in much lower than they expected. Financing contingencies can protect buyers against multiple dangerous scenarios, including a situation in which their employment situation changes and they no longer have the income necessary to secure a mortgage.
The current circumstances of the buyer and other factors influence what contingencies are appropriate. There are also contingencies that protect those looking to purchase commercial property. Drafting customized real estate documents can help buyers better protect themselves from the risks inherent in making an offer to purchase real property.
