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The pros and cons of real estate contingency clauses

On Behalf of | Jan 10, 2023 | Real Estate

When a piece of real estate switches hands, contingency clauses will often be used in the contracts. This can happen in home purchases, but they can also be used in commercial property purchases. Additionally, they can be used by both buyers and sellers.

If you’re considering making a purchase or a sale and you’re going through your contract, you may want to consider the pros and cons of using these clauses. Each situation is unique, so consider how it is going to impact yours.

Protections for buyers

One of the benefits for buyers is that they can be protected from things that are out of their control. This is why a home inspection clause is so common, for instance. The buyer doesn’t want to make an offer that they have to honor if the home fails the inspection, but they want to bring in a professional to carry that inspection out.

Protections for sellers

On the other hand, sellers can use contingency clauses to ensure that the buyer acts in a certain way. For example, the contingency clause may set a timeframe on when that home inspection has to be carried out, such as giving the potential buyer the next 21 days.

Making the offer attractive

The main reason not to use a contingency clause is that leaving them out can make an offer more attractive to a seller. Some sellers are wary about contingency clauses because they’re afraid that the deal is going to fall through. They don’t want to take a risk that the home may fail an inspection, for instance, or that the buyer may fail to secure financing. If they are given two offers that are virtually identical, but one contains contingency clauses and the other does not, they may go with the offer that does not.

That doesn’t necessarily mean that you should remove these clauses from your contract, but just that you want to consider all of your legal options and how to set things up properly during the real estate transfer.