A contingency, in real estate, means something that gives a buyer or seller an “out” clause to cancel or modify the terms of sale without violating the contract. In the buyer’s case, this means that if they choose to cancel the transaction using a contingency clause, they can still get their earnest money deposit back. Closing on a house requires that contingencies either expire or are removed. Let’s look at some common contingencies and how they are removed before closing on a house.
Loan approval. Often it’s not completely removed until the sale actually closes. Read your Sale Agreement for specific details.
- This is removed upon the home appraising for the purchase price or more. See All About Home Appraisals.
- You typically must have insurance lined up within a specified number of days.
Homeowners Insurance is also called Hazard or Fire Insurance. Talk to your insurance agent at least 2 weeks before closing.
Home inspection. Once the inspection period ends, the seller does not have to negotiate repairs any more. See Negotiating Home Repairs.
Property survey. If this is standard in your area, it must be done by a specified date and approved by the buyer.
Water & Sewer. Are you satisfied with tests and inspections on water and sewer lines/systems? These must be completed by a specified date or accepted “as is.”
- You need to tell the seller, in writing, what date you expect repairs to be completed & how you’ll be approving them.
To make removing inspection and repair contingencies go smoothly, be very specific when asking for repairs to be done and by what date they must be completed.
- If disclosures are given to you, you’ll have a certain number of days to back out of the deal if unhappy with them.
- When having a home built, you may be able to cancel the agreement if construction deadlines are not met.
Review of paperwork by a professional. You’ll agree on a time frame with the seller to approve of findings by professionals.
Watch your timelines for each contingency carefully because the seller may not be willing to extend them.