Suppose you find your dream home and commit to buying the property by paying a deposit. If you later withdraw from the deal, you risk not only losing your money but also other undesirable legal consequences.
It underscores the importance of contingency clauses in a home purchase contract. These legal provisions in the agreement can protect you from potential risks and uncertainties when buying a home. A lot can go wrong in the home buying process, and as a buyer, contingency clauses are essentially safety nets.
How do contingency clauses work?
Contingency clauses outline specific conditions that must be met for the sale to proceed smoothly. If these conditions are not met, you may back out of the deal without losing your deposit money or running into legal crosshairs.
Contingency clauses exist in various forms. The common ones include:
- Financing contingency – This clause makes the sale contingent on the buyer securing a mortgage loan within a specified period or favorable rates. If you fail to obtain financing, you can withdraw from the purchase without repercussions.
- Home inspection contingency – This clause allows you to walk away from the deal if significant issues that weren’t disclosed earlier are discovered in a home inspection. Alternatively, you can request repair or credits.
- Appraisal contingency – This clause safeguards you by ensuring the property appraises for at least the purchase price. You can renegotiate the price or opt out of the agreement if the appraisal value is way lower than the agreed-upon price.
Contingency clauses are negotiable between buyers and sellers. Therefore, seeking legal assistance before finalizing any home purchase agreement to protect your interests is prudent. Proper guidance can help identify the specific clauses that should be included based on your circumstances, local regulations and market conditions.