Buying real estate comes with a degree of risk. Property owners never know when they may have to invest substantially in repairs. They have to commit themselves to making mortgage payments even if they lose their jobs or face major medical hardships.
They are also usually liable if people get hurt while visiting their homes. The way that people behave during a real estate transaction can influence their degree of risk. How they hold title can protect them from liability in some cases or protect the home from creditor claims.
Even before they reach that point, people trying to buy homes may need to make choices to protect their resources. Contingencies included in an offer or purchase agreement are a key form of protection for those buying residential real estate.
What are contingencies?
A purchase offer is a binding contract. Buyers typically must follow through with the offer to purchase the property even if their circumstances change. They risk the loss of their resources if they do not follow through with the transaction.
Specifically, the earnest money that they deposit to indicate their sincerity when making an offer is at risk of retention by the seller. If a buyer must cancel the closing, the contingencies they add to their offer can help them protect their earnest money.
Frequently, contingencies relate to factors that could make a real estate transaction less beneficial. For example, buyers may include sale contingencies that allow them to cancel the closing if they cannot list and sell their homes.
Other times, they might add appraisal contingencies in case the professional valuation of the home comes in low or a financing contingency in case they cannot secure a mortgage. If a buyer has the right protection in their contract with the seller and they must cancel the closing due to unexpected complications, they can keep their earnest money and use it when making an offer on a different property later.
The right contract inclusions minimize financial exposure when making an offer on a property. Partnering with a real estate attorney makes it easier for buyers to craft custom documents and protect their interests during a residential real estate transaction accordingly.
