Making an offer on real property – or negotiating the terms for a purchase agreement – can be a complicated process. Those hoping to acquire real property are often eager to stand out from other buyers, but they also need to consider their financial and legal protection.
While some people recommend avoiding contingencies, they are actually a critical form of protection for buyers. Many people making the biggest purchases of their lives work with lawyers to better ensure that their documents provide them with adequate protection.
What are contingencies?
Contingencies are clauses that allow for the violation of an otherwise binding agreement. In a real estate purchase scenario, contingencies allow for the cancellation of a transaction. Buyers can include contingencies that allow them to withdraw their offer without putting their earnest money at risk.
Typically, buyers deposit at least 1% of the offered purchase amount as earnest money. If they cancel the closing after the buyer accepts their offer and they negotiate a purchase agreement, the seller can retain their earnest money to offset the expenses and inconvenience they experience as a result.
Contingencies often relate to appraisals or inspections. Buyers can also protect themselves from scenarios in which they cannot secure financing despite having pre-approval. Contingencies can also help those who must sell their homes to purchase a new one.
Including appropriate contingencies is critical for the financial protection of buyers who need to retain their earnest money if the closing doesn’t occur. A real estate attorney can help buyers ensure that their offers and purchase agreements do not leave them financially exposed.