Various contracts and sales agreements often contain contingency clauses, and a real estate sales contract is no different. Basically, a contingency clause contractually specifies that that certain conditions must obtain for the agreed-upon result to hold. So with a real estate sale contingency, the transaction (the sale) depends on (or is contingent on) certain things happening, such as the sale of the buyer’s current home. Contingency clauses can be confusing and can muck up the sale if you’re not aware of their full meaning. So let’s take a look at what Lake County home sellers need to know about contingencies in accepted offers.
Common Types of Contingencies in Accepted Offers
One prominent real estate attorney explains a contingency this way: “a provision in a contract that requires the completion of a certain act or the happening of a particular event before that contract is binding.” And it is common to include contingencies in accepted offers in Lake County. Here are the main types of contingencies:
The most common of all contingencies in an accepted offer is the financing contingency. This contingency stipulates that the sale is contingent on the buyer’s getting financing. It typically takes this form, according to the real estate pros:
The buyer’s “offer will likely say there’s no deal if required financing is unavailable. If he or his agent is smart, the wording will be specific – not just approval for any loan, but one he wants and can afford– for instance, a 30-year fixed-rate loan with 10 percent down at a rate not exceeding 5 percent. If the best offer he gets is a ‘non-prime’ with 30 percent down and a 10 percent rate, [thebuyer] is off the hook.”
So when, as a seller, you face a financing contingency in the sales agreement, try to make sure the offer is from a buyer who has been pre-approved for a mortgage rather than one who has simply pre-qualified or has done nothing yet with respect to financing. A financing contingency involving a pre-approved buyer will offer you less risk because that buyer (if her financial situation hasn’t changed and everything thing else is up to snuff) is assured of getting financing.
Another of the common Lake County contingencies in accepted offers is the home inspection contingency. In this case, the contingency usually stipulates much more than just that the buyer has a right to an inspection. Often, this contingency will allow the buyer to get repairs done or back out if the inspection turns up major problems. Such contingencies also frequently require the buyer to order and review the inspection within a certain amount of time and sometimes limit “the seller’s obligation to make repairs. It might say that if the cost of repairs is greater than 2 percent of the sale price, the seller can withdraw from the transaction.”
It’s critical then that you get the wording in the contingency exactly right. Your local real estate agent can be an invaluable asset here. (To find out more, call (352) 366-1977.)
Also, it’s a good idea to have your own inspection done before the buyer’s inspection to find out if there are any problems that need to be dealt with. Be aware that if your inspection does turn up any issues, you are legally obligated to disclose them to the buyer. The upside is that when you show proof of an inspection, the buyer may choose to waive hers.
Another common contingency is one specifying that your sale transaction depends on the buyer’s selling her current home. The problem with this contingency is that there’s just no way to know whether the buyer’s home will in fact sell. So if you take your house off the market for the buyer, you are taking a pretty big risk because you may never be able to close the deal.
The best way to deal with a sale contingency, then, is with a “kick-out” clause. With this clause, you reserve the right to keep your house on the market and accept a better offer if one comes along. Typically, though, you have to give the current buyer the right of first refusal, which means that the buyer has a short time (usually about 48 hours) to remove the contingency, move forward, and close the deal. But if the buyer doesn’t remove the contingency, you have the right to terminate the sales agreement.
Again, consult your local agent at (352) 366-1977 to find out the best way to handle a sale contingency.
Should You Agree to Contingencies in Accepted Offers?
When it comes to contingencies accepted offers in Lake County, you’ll find that it’s fairly standard practice. But whether you should agree to a contingent offer depends on the particular facts and circumstances of your situation and transaction. Still, if you want to sell quickly and at the best price, you will likely have to accept some contingencies in the offer.
The main things to watch out for in accepting a contingent offer are wasting time with a buyer who can’t qualify for financing and vague wording, according to the mortgage and real estate experts. “[A]n offer with no mortgage pre-approval – but a financing contingency, tiny down payment, and low-interest-rate limit – should make you nervous. An offer stating that the inspection must be “satisfactory,” without defining “satisfactory” could be opening up a can of worms you don’t want. Specifics are better than generalities.”
Use Your Agent
With all the things that can work to your disadvantage as a seller concerning contingencies in accepted offers in Lake County, it’s definitely a good idea to lean on the expertise of your qualified local real estate agent. Your agent can, for example, help you craft that critical “kick-out” clause we mentioned. Don’t risk delaying a sale and letting your house languish on the market. Find out how our agents can help. Contact us today at (352) 366-1977.