Contingencies protect buyers by allowing them to investigate the property and secure financing before being fully committed. The most common contingencies include inspection, financing, appraisal, and title contingencies. Each contingency has a deadline by which the buyer must either waive the contingency, negotiate further, or cancel the contract. Sellers generally prefer fewer contingencies because each one represents a possible exit for the buyer.
A buyer's purchase agreement includes an inspection contingency giving the buyer 10 days to complete a home inspection. During the inspection, the buyer discovers a cracked foundation. The buyer can request repairs, negotiate a price reduction, or cancel the contract and receive a full refund of the earnest money.
For the exam, know that contingencies are conditions that must be met, not guarantees. A contingency that is not waived or satisfied by the deadline typically allows the buyer to exit the contract. Understand the difference between a condition precedent (must happen before performance is required) and a condition subsequent (can undo performance after the fact).
Related Terms
Related Concepts
A purchase agreement is a legally binding contract between a buyer and seller that outlines the terms and conditions for the sale of real property. It is also commonly called a sales contract, purchase and sale agreement, or earnest money agreement.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
Consideration is something of value exchanged between parties to a contract, making the agreement legally binding. It can be money, a promise to act, a promise to refrain from acting, or anything else of value.
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
Frequently Asked Questions
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