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How Contingencies Affect Real Estate Transactions

March 21, 2019

Buying a home is no small event, and both buyers and sellers have every reason to be diligent and cautious when it comes to finalizing a deal. Not surprisingly, this can lead to disputes when parties do not agree on issues that arise.

For example, contingencies can spark debates and jeopardize a purchase. Because of this, it is important to understand what contingencies are and how buyers and sellers can address any problematic contingency issues to protect their respective investments.

What Are Contingencies?

Broadly speaking, contingencies are specific conditions that must be fulfilled or addressed before finalizing a deal. As noted in this Redfin article, common contingencies in home buying can include:

  • A financing contingency that lets a buyer back out if he or she cannot secure a loan

  • An inspection contingency that allows for further negotiation upon the completion of a home inspection

  • An appraisal contingency that makes the offer valid only if an appraisal proves the home’s value is at least as much as the offer price

If these or other contingencies are not fulfilled, either party may have the right to back out of the offer, and the buyer could recover his or her earnest money.

Complications that Arise

Numerous complications can arise when contingencies are involved. For instance, parties can disagree over whether the terms of a contingency are actually met. There can also be disagreement on deadlines and corrective action. Further, if a buyer or seller starts regretting a deal, he or she may make outrageous demands or counteroffers to try and get out of the deal.

What to Do About Contingencies

Should a dispute arise involving a contingency, there will be numerous options to consider. Is it possible to negotiate? Is litigation a wise decision? Would it make sense to take a financial hit and just walk away from the deal? The answer will depend on the details of the deal and the motivations of the parties involved.

Because a contract could hinge on one or multiple contingencies, it is important for buyers and sellers in Florida to understand their legal rights and options. This is why it can be valuable to work with a real estate attorney when entering any purchase or sales transaction.