This article is for informational purposes only and is not intended as professional advice; always consult your qualified advisors before making business decisions.
When making or receiving an offer on a property, you will often deal with contingencies as part of the purchase contract. Contingencies are simply provisions specifying an action or requirement that must be met for a contract to become legally binding. While every transaction is unique, I want to discuss some of the common contingencies and their potential impacts on a successful closing.
Essentially, a contingency can be written for any purpose to protect the buyer and their earnest money deposit. There is typically an inverse relationship between the number of contingencies and the offer’s appeal to the Seller. Think of contingencies as a “hurdle” that must be cleared before a race can be completed – the more hurdles there are, the less likely it is that the deal will cross the
finish line.
Common contingencies include: review of title work, financing/appraisal, inspection, and possibly a conditional sale of another property owned by the buyer. Agricultural properties can be complex and may require more contingencies than the “common” ones cited above. Irrigated properties, for example, may include a contingency for review of water rights, irrigation equipment, etc.; termination of a lease is another common contingency for a potential buyer of a farm/ranch property.
A variety of other factors outside of the transaction may come into play as well – like how long the property has been on the market, current demand and inventory of similar properties, motivation of the seller, etc.
In any case, work closely with your real estate agent and ask questions about how contingencies can help protect you as a buyer while still making your offer appealing to the seller. A carefully drafted purchase contract can make all the difference in the success of the deal getting to the closing table.
Contingencies lower the risk for a buyer while raising the risk for the seller.
