Negotiating
Dealing With Contingencies

   



Any offer you receive will probably contain some buyer escape clauses known as contingencies. A contingency gives buyers the right to pull out of the deal if some specific future event, such as getting a mortgage, fails to materialize.

Contingencies create uncertainty for you as a seller. The more contingencies buyers put in a contract, the more ways they have either to get out of the deal or to reopen negotiations for better terms. Unless you have people falling all over themselves to buy your house, most offers contain contingencies.

The most common contingencies are:

  • Property inspection contingencies: Your house's physical condition greatly affects its value. Smart purchasers insist on finding out exactly what shape your house is in before they buy it. If they don't approve the inspection reports or can't reach an agreement with you about handling corrective work for problems uncovered during the inspections, these contingencies let the buyers bail out of the transaction.

  • Financing contingencies: The buyers can withdraw from the contract if the mortgage specified in their contract isn't approved. That provision is usually fine. If the buyers can't get the loan they need to buy your house, why go any further. Here's a typical loan contingency:

    "Conditioned upon buyer getting a 30-year, fixed-rate mortgage secured by the property in the amount of 80 percent of the purchase price. Said loan's interest rate shall not exceed 7.5 percent. Loan fees/points shall not exceed 2 percent of loan amount. If buyer can't obtain such financing within 30 days from acceptance of this offer, buyer must notify seller in writing of buyer's election to cancel this contract and have buyer's deposits returned."

  • Other common contingencies give buyers the right to review and approve your property's title report and, if you're selling a condominium, the condo's master deed, bylaws, and budget. Buyers can make their contract contingent upon many other reasonable events, such as having their lawyer review and approve the contract or having their parents inspect the house.


What good, you may wonder, is a ratified offer riddled with escape clauses? We're glad you asked.

  • From the buyers' viewpoint, a contingency-filled offer still shows your intention to sell them the property. The buyers don't have to worry that you'll sell the house to someone else while they're spending time and money inspecting it.
  • From your perspective, a contingency-filled ratified offer ties up the buyers. If the buyers deposit earnest money into the trust account to prove that they aren't toying with your affections and then spend hundreds of dollars more for inspections, they're serious buyers. There isn't a standard "earnest money" deposit. The actual dollar amount varies from area to area, depending on local custom and practice.


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