A contingency is a condition that must be met for a contract to be binding. And in real estate, contingencies work for both home buyers and sellers. For buyers, contingencies protect them by giving them an out if certain conditions are not met by the seller. And for sellers, contingencies protect their interests by ensuring that the buyer is committed to going through with the purchase and won’t leave them in the dust.

But for the purposes of this article, we’ll only go over some common contingencies in property transactions that buyers can include. Let’s take a look!

Mortgage Approval Contingency

If you're not paying cash for the home, you'll need to get a mortgage. The mortgage contingency protects you in case your lender denies your loan. With this contingency, buyers can reclaim their earnest money deposit and walk away from the contract if their loan request is not approved. This contingency typically states how many days you’ll take to get a mortgage approval, and if it doesn't happen within this timeframe, the contract is void and you can walk away without any legal obligations.

House Sale Contingency

This is a common contingency, especially if you're selling your current home to buy a new one. This contingency states that the sale of your home must be finalized before you're legally obligated to purchase a new property. This contingency protects buyers in case their home doesn't sell within the specified timeframe, and they can't afford to carry two mortgages at once.

Inspection Contingency

The inspection contingency gives you the right to have the property inspected by a professional within a specified timeframe, and the outcome of this contingency depends on what the inspection report reveals. If the inspection indicates problems with the home, you can then negotiate with the seller to have the repairs made or you can walk away from the deal. You can also schedule a follow-up inspection if you’re dissatisfied with the first one.

Appraisal Contingency

An appraisal is an unbiased estimate of a property’s value. An appraisal contingency protects both the buyer and the seller in a real estate transaction. The buyer can back out of the deal or renegotiate the price if the appraisal comes in lower than the agreed-upon purchase price. On the other hand, if the appraisal comes in higher than the purchase price, then the seller is protected from having to sell their home for less than it's worth.

For example: say you’ve offered to pay $350,000 for a home. After an appraisal of the property, the appraiser tells you that the house is really only worth $300,000. You can then exercise your appraisal contingency clause to back out of the sale, even if you’ve already agreed, in principle, to buy the property.

Work With a Realtor for a Successful Homebuying Experience!

Working with an expert real estate agent in Illinois can help you understand how to use contingencies to your advantage. Your agent will know about the different types of contingencies and can offer suggestions on which ones may work best for you, based on your unique situation. Reach out to Richard J. Freedkin at (847) 922-8423 today to buy the home of your dreams in Illinois!