You found the house. You wrote the offer. The seller accepted it.
So, are you guaranteed to be buying the house?
Not quite.
Most real estate contracts contain deadlines and contingencies that have to be satisfied along the way. These protections are an important part of a real estate transaction, but they can also be confusing, especially when you’re already juggling inspections, financing, appraisals, moving plans, and possibly the sale of another home.
I recently had a transaction that was a good reminder of just how important contingencies and their deadlines can be.
My buyer found a home he wanted to purchase, but his purchase was contingent upon selling his current home. We had a specific deadline in the contract for that to happen.
Unfortunately, his home didn’t go under contract by the deadline.
At that point, the sellers of the home he was purchasing had a decision to make. They could agree to extend the contingency and give him additional time, or they could choose not to.
In this case, they chose not to extend, and my buyer lost the home he had planned to purchase.
It was disappointing, but it also illustrates exactly why contingencies exist and why buyers and sellers need to understand them before signing a contract.
So, What Is a Contingency?
In simple terms, a contingency makes part of the transaction dependent upon a particular event or condition.
Depending on the contract and transaction, a buyer may have protections related to financing, inspections and due diligence, appraisal, or the sale of another property.
The exact rights, obligations, and deadlines depend on the contract you’re using, so it’s important to understand the terms of your specific agreement rather than assuming every transaction works the same way.
A Home Sale Contingency
This is the situation my recent buyer encountered.
Sometimes a buyer needs the proceeds from their current home before they can purchase another one. An offer may be structured so that the new purchase is contingent upon certain things happening with the buyer’s existing property.
This can allow someone to pursue their next home without assuming all of the risk of owning two properties at once.
But there are deadlines.
If the required event doesn’t occur within the agreed upon timeframe, what happens next depends on the language of the contract and what the parties agree to do.
That’s why simply having a contingency isn’t enough. You also need to know what it says and when it expires.
Inspection and Due Diligence
Another important part of a purchase is the buyer’s due diligence period.
This is the buyer’s opportunity to investigate the property and decide whether it meets their needs. Depending on the property, that might include a general home inspection as well as additional inspections or research involving the roof, HVAC, septic system, well, sewer, boundaries, insurance, permits, or other items important to the buyer.
This is particularly important in the Prescott area, where properties can vary tremendously. One home may be on city utilities while another has a well and septic system. Rural properties and acreage can bring an entirely different set of questions.
Financing and Appraisal
Financing can also affect whether a transaction moves forward.
A buyer may be prequalified when an offer is written, but the lender still has work to do. Income, assets, credit, the property itself, and other underwriting requirements may need to be reviewed before the loan can close.
An appraisal may also be part of the process when financing a purchase. If the appraisal creates an issue, the options available to the buyer and seller depend on the contract and circumstances.
Again, this is where understanding the agreement you signed becomes so important.
Contingencies Aren’t a Bad Thing
Sometimes buyers hear the word “contingency” and think something is wrong.
That’s not necessarily the case.
Contingencies can provide important protections and create a roadmap for dealing with some of the uncertainties involved in buying or selling a home.
The key is understanding them.
What needs to happen?
Who needs to do it?
What’s the deadline?
And what happens if it doesn’t happen?
Those are questions I want my clients to understand before we’re facing a deadline.
The Contract Is Only the Beginning
Getting an offer accepted is exciting, but there’s still a lot that has to happen between acceptance and getting the keys.
Part of my job is keeping track of those moving pieces, communicating with everyone involved, watching deadlines, and helping my clients understand their options when something doesn’t go according to plan.
Sometimes that means celebrating when everything falls perfectly into place.
And sometimes it means helping a client navigate the disappointment of a contingency that couldn’t be satisfied.
Either way, you should understand what you’re signing and have someone in your corner helping you navigate what comes next.
Thinking about buying or selling in the Prescott area? Let’s talk about your situation before you make your next move.
