When entering into a purchase agreement, there are several terms that must be considered. Two crucial items that are often included in the agreement are contingencies. These contingencies serve to protect both the buyer and seller and ensure a smooth transaction process.
Contingencies are clauses or conditions included in a purchase agreement that specify certain conditions must be met before the sale is finalized. Failure to meet these conditions can result in the agreement being terminated without any liability to either party.
Most purchase agreements are contingent on two items – financing and inspection. Here`s a closer look at these two contingencies.
1. Financing Contingency
The financing contingency is perhaps the most common contingency in a purchase agreement. This contingency allows the buyer to back out of the transaction if they are unable to obtain financing for the property. It`s crucial to note that obtaining financing is not guaranteed, and even pre-approved buyers can still have their loan application denied.
The financing contingency usually specifies a time frame within which the buyer must secure financing. If the buyer is unable to secure financing during this period, then the contract can be terminated, and the earnest money deposit returned to the buyer.
2. Inspection Contingency
The inspection contingency allows the buyer to back out of the agreement if the inspection reveals problems with the property. This contingency is also known as a due diligence contingency, and it protects the buyer from purchasing a property with hidden defects that may require expensive repairs.
The standard inspection contingency period is typically ten days, although it may vary depending on the agreement. During this time, the buyer can hire a professional inspector to examine the property and identify any issues. If any significant problems are discovered, the buyer can renegotiate the terms of the agreement, ask the seller to repair the issues before closing, or terminate the contract altogether.
Contingencies are a crucial part of any purchase agreement, and it`s essential that both buyers and sellers understand their purpose and implications. By including contingencies in a purchase agreement, both parties can protect themselves from financial losses and avoid potential legal disputes.
Most purchase agreements are contingent on financing and inspection, but other contingencies might also be included depending on the specifics of the transaction. Whatever the contingencies are, it`s crucial to work with an experienced real estate agent or attorney to ensure that the purchase agreement is fair, equitable and legally binding.