Sunday, September 22, 2013
What Does ‘Contingency’ Mean in a Listing?
A contingency is a provision in a real estate contract that specifies the contract would cease to exist upon the occurrence or lack of occurrence of a certain event. Over 70% of the time the contract will be 'contingent upon financing' (or appraisal, or contingent on a spouse who is not in the area seeing the property and agreeing to the purchase, etc) for example. This is so common that this contingency is often over looked.
The big ones to watch out for are contracts that are contingent upon the buyer selling their home. There are two different types here.
The first is: contingent upon the closing of property A with a finalized contract dated X and a closing date of y. This would mean that they already have a buyer under contract on their home but should that contract fall through for any reason they reserve the right to back out of this new contract to purchase a home. These contracts are fairly straight forward and once the buyer of house A is past inspections and loan approval then there is little to worry about.
The second type is: contingent on the sale of property A with a listing date of X. Here the property is listed for sale but has yet to attract a buyer. This offer is more of a gamble as it may take a very long time to attract a buyer for house A. Here it is best to make sure the offer allows you to continue to market the house and allow showings so that if a better offer comes along that opportunity is not missed. There are typically previsions in the contract allowing for a 72 hour kick-out for the buyers with the contingency regarding property A. This allows them to drop their contingency if they still want the house.
Think of a “contingency” as a “condition”.
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