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Pros and cons of contingency clauses

On Behalf of | Nov 22, 2023 | Real Estate

Contingency clauses essentially mean that something has to happen in order for a contract to be binding. If that contingency isn’t met, then the other party is free to break the contract. They haven’t committed an illegal act by doing so.

In real estate, a common example is when a buyer will use a home inspection contingency clause. If the house passes the inspection, then the buyer has to abide by their offer. But if it fails the inspection, they can walk away without any obligation and without losing any money.

How this is beneficial

If you are a potential buyer, contingency clauses can be very helpful because they protect you. Another clause that is often used says that you must be approved for a mortgage loan in order for the contract to be binding. This helps protect you in case you don’t get final approval from the lender. You are not still obligated to purchase the home with money that you do not have. Contingency clauses offer protection against specific events that may take place, giving you more confidence in your offer.

Why you might remove them?

That being said, some buyers do opt to remove contingency clauses from their offers. The main reason to do so is because it might make that offer more competitive. If a potential seller has two offers that are identical, but one has a home inspection contingency clause and the other does not, the buyer may choose the offer without the clause because it is simply more likely to go through.

Real estate transactions can be complicated. Those involved need to know what legal steps to take.