Acquiring real property is a major goal for many adults. People want to own their own homes instead of paying rent for the rest of their lives. Some people acquire multi-unit properties to rent to others or commercial space in which they intend to operate a business.
Buyers making offers on real property are often bound by the terms of those offers. Including appropriate contingencies in an offer or in the purchase agreement negotiated with the seller can protect a buyer from two unfavorable scenarios.
What do contingencies help to prevent?
Unfavorable transactions
Contingencies are clauses that authorize the buyer to cancel the transaction in certain circumstances. If the condition of the property is worse than what cursory inspections and disclosures indicated, buyers may want to cancel the transaction. Contingencies allow buyers to walk away from properties that do not meet their needs or that they may struggle to repair.
The loss of earnest money
Residential buyers generally deposit at least 1% of the offered sale price as earnest money. The funds indicate the buyer’s sincere intent to purchase the property.
If they cancel without justification or contractual protection, the seller can retain the earnest money. Contingencies allow for penalty-free transaction cancellations. If the situation triggers a contingency, buyers can cancel the closing without financial consequences.
Including the right terms in real estate offers and purchase agreements can protect buyers from major setbacks and four outcomes. Contingencies are often important, as buyers never know what might happen between when they make an offer and when they sign the final documents. Buyers who have legal support can craft custom documents that protect them as effectively as possible.