When it comes to buying or selling a property, purchase agreements are essential documents that define the terms and conditions of the sale. These agreements clearly outline the responsibilities of both parties involved in the transaction, including the price, payment terms, and contingencies.
Contingencies are conditions that must be met before the transaction can be completed. They are often included in purchase agreements to protect both the buyer and the seller from potential risks and uncertainties. While there can be various contingencies in a purchase agreement, two of the most common ones are financing and inspection contingencies.
Financing Contingency
A financing contingency is a condition that states the sale of the property is dependent on the buyer obtaining financing. In most cases, buyers will need to secure a mortgage loan from a lender to purchase a property. This contingency gives them the opportunity to back out of the sale if they are unable to secure the necessary financing.
This contingency also protects the seller as it ensures that they are dealing with a buyer who is financially able to complete the transaction. If the buyer is unable to secure financing, the seller can move on to another prospective buyer who is more likely to be able to close the deal.
Inspection Contingency
Another common contingency is the inspection contingency. This condition gives buyers the right to inspect the property before closing the transaction. The inspection can reveal any issues or defects that may affect the value of the property or the safety and comfort of the occupants.
If the inspection reveals issues with the property, the buyer can request repairs or renovations or back out of the sale altogether. The seller then has the choice to make any necessary repairs or renegotiate the terms of the sale with the buyer.
Final Thoughts
Purchase agreements are legally binding documents that protect both the buyer and the seller during a real estate transaction. Contingencies are a vital part of these agreements as they allow parties to back out of the sale if certain conditions are not met. While there can be various contingencies, the two most common ones are financing and inspection contingencies. If you are involved in a real estate transaction, make sure to understand these contingencies and how they can affect the sale.