Contingency clauses are often included in real estate purchase agreements by the buyer. Contingency clauses allow the buyer to back out of the agreement and have their down payment returned to them in the event they or the seller are unable to satisfy the contingency. Contingency clauses are often used to renegotiate terms of the contract if the contingency is not met. In a seller’s market the seller maybe unlikely to agree to any in the contract.
What is an inspection contingency?
An inspection contingency, also known as a due diligence contingency, gives the buyer the right to have the home inspected within a specified period of time from signing the contract. The inspection contingency allows the buyer to either cancel the contract or perform repairs if not satisfactory. What is considered satisfactory will be determined by the terms of the contract.
“Purchaser(s) or its (new) agent shall have right to inspect premises within 48 hours before closing or taking possession to ascertain physical condition of premises, systems and appliances to be transferred.”
While it is preferable for the seller to have all property inspections conducted prior to contract signing, inspection timing is often negotiated. Buyers prefer to have inspections performed after entering into contract. This is because buyers don’t want to spend money on an inspection for a house they don’t get.
What is a financing contingency?
Financing contingencies, also known as mortgage contingencies, allow the purchaser to cancel the contract if the purchaser is unable to obtain a mortgage or loan commitment from a lender. The terms of the contingency vary from contract to contract, but almost always require the purchaser use reasonable efforts to obtain the loan. The type of loan interest type i.e. variable versus fixed, term, and length of time the purchaser has to obtain the commitment are common negotiated terms.
“It is understood and agreed that this agreement is subject to the Purchaser(s)’ obtaining a firm conventional mortgage loan from a lending institution in a sum not less than _____, for a period of not less than _____ years with interest at the prevailing rate at closing of title. The Purchaser(s) (does) (do) warrant and represent that (he/she) (they) will diligently and in good faith apply for said mortgage and will promptly furnish all reports, documents, verifications, and/or fees required in connection therewith. In the event the Purchaser(s) do not obtain said unconditional mortgage by ___________ after the exercise of good faith, then this contract shall be deemed null and void at the option of either party to this agreement, communicated to the other or to their attorney, in writing, via the United States Postal Service, and the Seller(s)’ sole liability hereunder shall be the return of all monies paid pursuant to this contract.”
What is an Attorney Review Contingency?
An attorney review contingency allows the buyer or seller to terminate the contract within a certain number of days of signing upon an attorney’s objection. Attorney contingency clauses are not common in New York because most contracts are negotiated between attorneys. This is unlike New Jersey where the real estate agents prepare a form contract and attorneys may only become involved after the contract signing.
“This contract is subject to the written approval of attorneys for Buyer and Seller within [number of days] calendar days, excluding Sundays and public holidays, from date of acceptance (the “Approval Period”). If either attorney: (i) does not provide written approval within the Approval Period; or (ii) makes written objection to or conditionally approves (collectively, the “Objection”) the contract within the Approval Period and the Objection is not cured by written approval by both attorneys and all of the parties within the Approval Period, then: (A) either Buyer or Seller may cancel this contract by written notice to the other, and any deposit shall be returned to the Buyer, or (B) the approving attorney may notify the other party (with a copy to any attorney listed below), in writing, that no approval has been received, and the noticed party has five (5) calendar, days, inclusive of Sundays and public holidays, from receipt of the notice (“Grace Period”) to provide written attorney approval or disapproval of the contract. The approving attorney shall provide to the noticed party (with a copy to any attorney listed below) a copy of the approving attorney’s approval letter, whether conditional or not, along with the written notice of the Grace Period. If written attorney approval or disapproval is not provided to the approving attorney within the Grace Period, then this Attorney Approval contingency shall be deemed waived by the noticed party, and any conditions in the approving attorney’s approval letter shall be deemed accepted by the noticed party.”