What to Know About Home Contingencies

Posted by Justin Havre on Friday, April 6th, 2018 at 9:43am.

What Home Buyers and Sellers Ned to Know About Home ContingenciesAre you looking to sell a home and do you need to include home sale contingency clauses in a contract? There are benefits and drawbacks to such contingencies but they do offer a legal way for contracted parties to meet specific actions or terminate a contract. How may home sale contingency clauses impact the selling or buying of a home?

What Is a Home Sale Contingency Clause?

A contingency clause may often be found within either an offer to purchase a property or a real estate sales contract. The transaction is binding if the home sale contingency clause is met. If the clause is not met or not met within the time frame specified, the buyer or seller may back out of the contract without a penalty. There are often specific terms or a timeframe stated as part of the home sale contingency clause. Home sale contingency clauses can benefit both buyers and sellers as it serves to move the process along. There have been cases where buyers have forgone common home sale contingencies to have their offer appear more attractive to a seller.

What Are Common Home Contingencies in Canada?

Some home contingencies have become common to home purchasing contracts. Common home sale contingencies include:

  • A Sale and Settlement Contingency; and
  • A Settlement Contingency.

For the first of the contingencies listed, the sale of a home will be able to go through if the buyer is able to sell and settle their existing home. This allows the potential buyer some time to sell a home and the seller is permitted to keep the home on the market, possibly attracting other offers. If the seller gets another offer, the original buyer may be able to remove this contingency clause within 24-48 hours generally. When this is not possible, the contract is terminated and the seller may accept another offer on the home. The buyer receives back their earnest money deposit.

A settlement contingency occurs when the buyers has both a contract and a settlement date. At this point the closing still needs to occur and this clause provides protection for the buyer if this process fails to go through. The seller may not accept other offers at this time and the buyer must close on the home by the date specified. The contract will no longer be valid if this contingency is not met.

Why Are Home Contingencies Useful?

Home contingencies offer a measure of protection for buyers and sellers. In some cases, a seller may continue to market the Cochrane Heights home in the chance that the original buyer cannot meet with certain terms, get necessary financing or sell their home within a specific period. A buyer get a chance to sell the home they are in while still being considered as a serious buyer for another property and having the opportunity to respond to the seller if they receive other offers.

Home contingencies are often used to outline actions and timeframes that must occur in order for the closing of a property to occur. They are also opportunities for the buyer or seller to legally back out of a contract if one or more contingencies are not met within the contract. In such cases where one of the parties has to back out of the contract as a contingency is not met, the buyer receives their deposit back.

What Are Some Drawbacks for Buyers and Sellers?

If home contingencies are not met, a home may go back onto the market and the prospective buyer may no longer be “locked in.” A seller would have to actively market the property, spending time, money and energy to locate another qualified buyer. A buyer who cannot meet the terms of the contract does receive their earnest money deposit back but cannot expect to get a return on other costs, such as home inspection fees, appraisal fees and more. It may be useful for a seller's agent to look into if a potential buyer's current home is currently on the market before a seller agrees to any home sale contingency.

When Are Contracts with Home Contingencies Beneficial?

In many cases, a buyer cannot purchase a new home without selling their current home. Sellers may want to consider such contracts with contingencies when they have had their home listed for some time and are willing to take on a buyer with full knowledge that the settlement may not go through. It may be best for a seller to discuss home contingencies with an agent before listing a home and learn whether or not they should be included in contracts, depending on the state of the market and other factors.

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