When someone wants to buy a home, they will make an offer to the seller. In some senses, this offer is a binding contract. If the seller decides to accept the offer, the buyer typically has to move forward – and backing out could cost them financially.
However, these purchase offers will often contain contingency clauses. These are clauses designed to give the buyer an out. They are a way for the buyer to break the contract without any financial penalty. Their offer is contingent on certain details and stipulations being met.
2 common contingencies
For example, one common contingency is to secure financing. Many people are making their initial offer without actually being approved for a mortgage loan. They may have preapproval and assume there won’t be any issues. But if it turns out that they can’t get the mortgage, then they can walk away without making a purchase.
Another common contingency is for home inspections. Even if a buyer walks through the property and thinks that the house looks great, they may not know if there are hidden issues that are going to require tens of thousands of dollars to fix – a leaky roof, cracks in the foundation, etc. If the home fails the inspection, then it is possible for the buyer to withdraw their offer. They are not obligated to purchase the house because the contingency hasn’t been met.
These are just two examples, but they help to show how complex a real estate transaction may become and why it is so important for all involved to understand their legal options and obligations.