What Is a Real Estate Contingency Contract?

A real estate contingency contract is simply the addition of language pertaining to the seller's and the buyer's needs in order to complete the sale. A sales contract presented by a real estate agent, is often amended to include contingency agreements from one or both parties to complete the sale. Signatures from all parties and real estate agents are required to make the sales and contingency contracts legally binding documents.

Contigency Contract Statements

Contingency contract language can range from a simple statement pertaining to light fixtures or a hot tub on the sale property, to major property repairs, which require an exchange of funds from one of the parties involved, typically the seller.

Buyer Obligations

A typical contingency contract contains wording indicating the buyer's obligation to purchase the real estate is voided if financing can't be obtained. This important language allows a buyer to make an offer on real estate properties, without any legal penalty or cost if a financial institution won't lend the buyer money for the purchase.

Purchase Price and Contingency Contracts

The contingency contract may change the purchase price of the real estate property. If a buyer has to replace a furnace, for example, the contingency contract would reduce the sale price for the exact amount of the stated home improvement. Commonly, the seller requires at least one estimate for home improvements, and the price is mutually agreed upon before it is listed as a contingency on the sales contract.

Earnest Money Deposits and Contingency Contracts

A real estate broker often puts earnest money into escrow when a buyer client makes an offer on real estate. This deposit money shows good faith to the seller, while the buyer attempts to secure financing. A common contingency written into a sales contract also includes the facts surrounding the earnest money. If the buyer can't secure financing, or the seller doesn't live up to contingency requirements from the buyer, the earnest money is returned.

Contingency Contracts Provide Clarity for Sellers and Buyers

Real estate agents and attorneys carefully word earnest money terms, and contingency agreements to protect their clients during the negotiations and sales contract process. Contingency agreements serve the purpose of clarification for both buyers and sellers. The avoidance of any gray areas in relation to what is real or personal property inside of a home, yard, barn, or on a parcel of land are frequently included in contingency contract language. Misconceptions regarding the inclusion of stoves, refrigerators, shelves, and window treatments in the sale of real estate are avoided by the use of contingency contracts.

Resources

• ATGF webpage defining and tips on contingency contract language and protectioins