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Pros and cons of contingency clauses

On Behalf of | Mar 26, 2024 | Real Estate Law

A contingency clause is part of a real estate contract that regulates whether or not that contract has to stand. The contract is contingent on these clauses, meaning that if specific details are not met, the prospective buyer can walk away from the deal, even though they’ve already made an offer.

An example of this is saying that the validity of the offer is contingent on the home inspection. Both the buyer and seller expect the home to pass the inspection without any problem. But the contingency clause simply states that, if it does not, the buyer doesn’t have to go through with the transaction.

Protecting your financial investment

The main benefit of this, then, is that it gives you some financial protection. You can make an offer without having to worry about hidden damage that is going to come to light in the future. If the home inspector finds an issue, you don’t have to go through with the transaction and your financial future is more secure. You can also use contingency clauses for things like being approved for a loan or selling the home that you already own.

Making your offer more attractive

The downside is that some sellers aren’t interested in dealing with contingency clauses, as they worry that the deal may fall through. Therefore, if you want to make the offer more attractive – perhaps there are numerous offers in the same financial range as yours – one way to do it is to remove the contingency clause. This is a risk, but it may increase the odds that your purchase offer will be selected.

It can be complex to navigate the process of a real estate exchange. Take the time to carefully consider your legal options.