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A Home Buyer’s Guide to Contingency Clauses

Young couple shakes hand with real estate agents and discussing home buyer contingencies
Home buyers with a realtor

When buying a home, you need a few protections. Just like buying a car, you must be careful not to buy a beautifully painted “lemon.” A house with poor maintenance and hidden flaws can become a financial trap and an eternal source of stress instead of the fresh new chapter of your life that a home purchase should be. This is why there are buyer contingencies.

If you are buying a home in the current fever-pitch housing market, you may have seen the advice to drop your buyer contingencies. This can make a bid for a home more competitive, but just what are you being asked to drop? What are buyer contingency clauses, why do you need them, and which ones should you drop as a strategic move to sweeten your offer? Stay tuned, that is exactly what we’re exploring today.  

What is a Contingency Clause?

A contingency is a contractual protection. It says the buyer can back out of the purchase if certain criteria are not met. A common example is an inspection contingency, where a buyer can back out if their inspector finds any major repair issues that can’t be resolved before the sale. Placing this contingency clause in the contract protects the buyer from maintenance surprises and hidden flaws. 

Top 5 Home Buyer Contingencies

  1. Appraisal Contingency
  2. Inspection Contingency
  3. Financing Contingency
  4. Home Sale Contingency
  5. Kick-Out Clause

1. Appraisal Contingency

The buyer has 30-60 days to have the home appraised to ensure the property meets a set minimum value. This protects the buyer from overpaying for the property.

2. Inspection Contingency

The buyer has 10-60 days to have the home inspected by one or more experts to detect flaws or underlying maintenance problems. This protects the buyer from investing in surprisingly costly property.

3. Financial Contingency

The buyer has 30-60 days to secure or complete their financing to buy the house. This protects the buyer from purchase obligations if their financing falls through.

4. Home Sale Contingency

The buyer has X number of days to sell their existing home, then buy the seller’s home with the profits. If the existing home does not sell, the buyer can back out of the purchase.

5. Kick-Out Clause

This is actually a buyer concession. A buyer who asks for a home sale contingency can agree to a kick-out clause. This allows the seller to choose another buyer if selling the existing home takes too long.

How Contingencies are Determined in a Home Purchase Offer

Contingencies come from a combination of necessity and incentive. Buyer contingencies protect the buyer from investing in a home they can’t afford or that had flaws hidden during negotiations. However, buyers can also choose to take calculated risks and waive certain contingencies when the time is right. For example, if you know the home’s appraisal value (perhaps the seller had it appraised before listing) and your financing is pre-approved, you might waive the financing and appraisal contingencies.

Most buyers go with a standard set of contingencies from a template home purchase offer. This is partly why intentionally waiving a contingency or two can stand out as appealing to sellers.

How Home Buyer Contingencies Impact Your Offer Strength

How do buyer contingencies impact the strength of your home offer? Good question. This depends on the buyer and real estate agent. Waving contingencies saves time and offers more protection to the seller. It also shows confidence, especially if you are ready to put down earnest money into escrow. Sellers with a real estate agent who understands competitive bidding will see that waiving buyer contingencies will stand out. Just thoughtfully waive contingencies that provide convenience to your seller. This is what will make your bid more appealing.

That said, never waive your inspection contingency unless you have access to a very recent home inspection from a previous event.

Buyer contingencies are an important part of safely purchasing a home. When to waive them to sweeten a bid and when to hold onto your contingencies is a matter of risk and strategy. Work with your real estate agent to know the right strategy for your bid, your seller, and your circumstances. To find the right real estate agent to start your home buying journey, contact us today.

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Zillow user Jamisonrp

Sold a Roxborough home in 2017

"Trish is amazing! Trish was my agent when I bought my home in Philadelphia, so of course I went to her when I was ready to sell. Despite an election and the holidays, she was able to have my house sold by the time frame I needed to move. Trish was always helpful with guiding me through the  process of paperwork, staging my house, and even went to my closing for me because I was out of town. She was always professional and incredibly knowledgeable about the market, comps, and finding appropriate potential buyers."

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Sold a Phoenixville home in 2015

"Trish Puleo exceeded my expectations during the process of selling a home that was part of an estate. Since I was out of state, she offered to check on items and secured vendors to fix some repairs that were needed. She is responsive, knowledgeable, and thorough. She followed up on all showings  and got answers to questions from potential buyers even when I did not know the answer. I felt she always had my back especially with the settlement process since I was not planning on attending. I would highly recommend making Trish your partner in getting a house sold." 

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Bought a Phoenixville home in 2017

"We were first time home buyers who underestimated the details of what on the surface seemed to be a standard, as in everyone has the same forms and procedures and ethics, home buying process. Trish is an experienced  professional who brought with her calm sensibilities, timely and accurate communication, and complete knowledge of the requirements, timelines and paperwork. She was reassuring, helpful and on our side when we needed it most! Only wish we would have included her the moment we decided to buy a house!"

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