Home Sellers Guide to Offer Contingencies

Offer Contingencies: A Home Seller’s Guide

By Properly Team

The closing process is filled with potential issues that can delay or even prevent your closing. Offer contingencies are clauses in the purchase contract that dictate the circumstances under which each party can back out of the agreement. These clauses come in many flavors, from the fairly common and benign Inspection Contingency to the rarer Short Sale Contingency.

Offer contingencies must be removed within a specified time frame in order for a home sale to move forward. For example, a Financing Contingency usually gives the buyer 14-21 days to secure a loan for the property. If the loan isn’t secured by then, the buyer can back out of the contract.

Here are some contingencies we often see in our home seller’s contracts:

Financing Contingency

One of the most common clauses, a Financing Contingency lets the buyer back out of the deal if he is unable to secure a mortgage for the purchase. This contingency usually expires within a few weeks of signing the offer contract.

Appraisal Contingency

Closely linked with the previous item, this contingency gives the buyer the right to back out of the contract if the formal appraisal conducted by his lender finds the house to be worth less than the offer amount. In this case, the buyer can either make up the difference in cash, since the lender won’t issue a mortgage for the full offer amount, or he can back out of the sale.

Inspection Contingency

This clause gives the buyer a certain number of days to conduct an inspection of the property and report on any issues they find. This can often lead to another round of negotiations on who will pay to repair the defects.

Backup Contingency

This clause allows a home seller to accept two offers on their property simultaneously. If the first offer falls through, the seller can immediately move to accept the second offer.

Short Sale Contingency

In the case of a short sale, where the home seller and the bank have agreed to sell the property for less than the remaining amount on the mortgage, this contingency gives the lender the right to review and accept or reject the offer negotiated by the seller.

HOA Contingency

If the home seller’s property belongs to an HOA, the buyer can attach a contingency that requires the seller provide any relevant HOA documents within a certain time frame. This contingency can be used for the buyer to back out of a deal in case any surprises pop up in the HOA rules (e.g. renters aren’t allowed).

General Contingency

This is really a catch all for any other contingencies either party wants to add. For example, a buyer can add a contingency that they will only purchase the seller’s house if his own property goes under contract or gets sold in a certain amount of time. As you can imagine, this can lead to a chain of contingencies – we’ve helped clients with 4 house deep contingencies all dependent on one property selling.

As your home selling agent, it’s our job to both negotiate the fewest offer contingencies on the final contract, make sure you understand how those contingencies can impact your sale, and follow up with the buyer to ensure the contingencies are successfully removed in time.